Clearing debts to grow wealth
For a client hoping to grow savings and build wealth, a good first step is tackling any outstanding debts.
David Byrne, Savings and Investments Lead, Aviva Life & Pensions Ireland
One way to do this is by using a portion of any disposable income to chip away at debt.
Two common approaches are the avalanche or snowball methods.
Avalanche Method
This method focuses on paying off the debts with the highest interest rates first. Start by listing debts from highest to lowest interest rate. The client should continue making the minimum payments on all their debts but put any extra money toward the one with the highest rate.
Once that’s cleared, move on to the next highest. This approach helps reduce the total interest to be paid and empower them to build their savings.
Snowball Method
The snowball method takes a different approach. Here, a client would list their debts from the smallest balance to the largest, ignoring interest rates. Make sure to cover the minimum payments on all of them but put any spare cash toward the smallest debt first.
Once that’s paid off, move on to the next smallest, and so on. It’s a great way to build momentum and stay motivated as the debts disappear one by one—though it will mean paying a bit more interest when compared to the avalanche method.