Ready to fight over credit card debt?
if Debt Avalanches and Snowballs When you think about all the interest you’ll end up paying, these methods can make you feel a little cold, consider the debt lasso method.
Developed by David Auten and John Schneider, also known as no debt guy, the Debt Lasso method involves classifying your high-interest debt into low-interest debt so you can pay off your principal balance faster — and spend less money.
Want to learn more? Auten and Schneider tell us about the debt lasso, including who it helps the most — and who shouldn’t use it.
What is the Debt Lasso Method?
If you’ve read about other debt repayment methods, you may be wondering if the lasso method is just one Balance Referral. Auten and Schneider frequently answer this question.
“The reality is that a core part of the process is some kind of integration — whether it’s transferring balances to a zero-interest credit card or a low-interest loan,” Auten said. “But a lot of people forget the first two paragraphs and the last two paragraphs.”
We’ll look at all the sections, but let’s first determine if the debt lasso method can help you.
Who Should Use the Lasso of Debt?
To determine if the debt lasso method is right for you, start by adding up the amount of credit card debt you owe. Then compare your total debt to your annual income. If your debt is less than half your income, the debt lasso method may be for you.
So if you have $15,000 in credit card debt and your Total revenue At $30,000 (before taxes and other deductions), you’re an ideal candidate for a debt lasso.However, if you have $65,000 in credit card debt and the same salary, you may want to seek other Helping you pay off your credit card debt.
While it may be tempting to pay every penny on your debt, don’t drain your emergency fund while practicing the debt lasso method.
If you can actually pay off your credit card debt within six months, you also probably won’t benefit from using a lasso, as the associated fees (usually 3% to 5% of the transfer amount) may outweigh the savings you’ll get through Take advantage of lower interest rates.
But if you’re somewhere in between, a lasso can help you pay off your debt in less time and with less interest.
How the Debt Lasso Method Works
Ready for a debt-free sunset? Wow, man. Remember: you must follow each step.
You cannot successfully use the debt lasso method unless you are willing to commit.
Auten and Schneider should know: They started their debt lasso journey with $51,000 in credit card debt. After years of poor financial choices, the couple sat on the floor of their basement apartment realizing their debt would never allow them to buy a house or enjoy life as friends.
“That was our particular low point, realizing that we were in this financial and literal predicament,” Schneider said.
So they made a two-part commitment – if you want to use the debt lasso method, you need to do this too:
Stop using your credit card. Without exception.
Determine an amount that is greater than the minimum total monthly payment you can reliably pay off your debt each month.
Committing to the process is essential, Auten and Schneider say, because it will help you later when you might be derailed.
Start off with an easy win by paying off any credit card with a low enough balance to be eliminated in less than six months.
Early wins not only provide psychological benefits, but they also help you credit score.
Maintaining these lines of credit will reduce your credit utilization, which accounts for about 30% of your credit score. And the higher your credit score, the better your position will be when you’re ready to lasso.
Time to get in the saddle.
If you have a good or excellent credit score, your goal should be to find a zero-interest deal that will transfer your highest-interest credit card debt.
However, if you don’t have a high credit score, these deals can be hard to come by. do not give up.
You can still benefit from the lasso method by negotiating a lower interest rate with your current credit card company or transferring your balance to a card with a much lower interest rate than what you are currently paying.
“Getting you down from 20 to 25 percent to 9 to 15 percent — that’s a great first step,” Schneider said.
And don’t limit yourself to credit card offers. Paying off multiple cards with a personal loan has the same effect.
Compared to the average credit card rate of 17.13% in the third quarter of 2021, the interest rate on personal loans is better at 9.39%. US Federal Reserve.
No matter which offer you take, you can transfer or repay as much of your balance as possible with a lower interest rate.
If you have additional higher interest balances, pay off the credit card with the highest interest rate first.
Every time you pay off a credit card, use your money to pay off the next highest balance.
Remember that you have committed not to use your credit card (see step 1). So stick to what you’ve paid off. why?
A card with no balance means you have more credit available, which can help improve your credit score. A higher credit score will help you get approved for another zero-interest credit card.
Automate your minimum monthly payments, and in addition to your Lasso credit card, you can focus on paying off one debt at a time. But automating your payments can help even more.
Remember how we talked about the importance of commitment due to later temptation? This is where it comes into play.
You may have multiple credit cards, but we’ll keep the example simple with one card: When you start your debt lasso journey, your minimum monthly payment is $80, so you commit to paying $200 on your credit card — Pay an additional $120 per month.
After you pay off part of your balance, your credit card company will tell you that the new minimum payment is only $60. Yeah! But that doesn’t mean you now have $20 to spend — you should keep paying $200 a month to put more money into your principal balance.
By automating your payments, when your minimum payment goes down, you’ll be less inclined to reduce the amount – a bit of a dizzying mindset.
Putting all the extra money into the card with the highest interest rate will help you pay the least interest over time. This is where the last step becomes crucial.
Now is not the time to put your debt payment strategy into practice. Monitoring your account is an important last step, as these credit card rates can get out of hand if left unattended.
Before you hit the end of the zero-interest period, start looking for other offers that allow you to transfer your balance so you don’t get stuck with a new, higher rate on your old card.
While opening a new account can temporarily hurt your credit score, Auten and Schneider emphasize that the long-term benefits of paying off debt faster can help offset that effect.
They include a calculator if you want to know when your debt lasso is over Debt Lasso Website Helps you calculate how long it will take to pay off your credit card based on your interest rate and debt amount.
Who Shouldn’t Use the Debt Lasso Method – Now
A word of warning: If you’re in an industry that could be furloughed or laid off, you should probably keep your horses and your cash on hand.
“If you do get an offer and you end up unable to pay, then you could be stuck with a 25% to 30% interest rate,” Auten said.
Credit card agreements often include a clause in the fine print that allows them to raise your interest rate if you miss a payment during the zero-interest offer. Some will even sneak in the right to recoup any money you saved before the promotion period at the new rate.
Takeaway Lessons: Read the fine print.
Saving cash temporarily allows you to build an emergency fund in case you do lose income. If it turns out you end up with an extra reserve, pay it out as a bonus when you go back to the debt lasso method.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder, and he’s all about clichés.read Her resume and other jobs are here, then catch her on Twitter @TiffanyWendeln.