Start Your Debt Free Journey in 2025

When tackling debt, it is important to follow methodical strategies to make a dent and accelerate the repayment in such a way that it not only covers the interest rate but also the loan amount. two popular strategies are often recommended: the Debt Snowball and the Debt Avalanche methods. Both have their pros and cons, and the choice often depends on your financial situation and personality. Let's break down how each method works and illustrate their impact using a sample calculation. Then, we’ll introduce how combining these methods with an Infinite Banking Policy can supercharge your journey to becoming debt-free and building tax-free wealth simultaneously.

Comparing Debt Repayment Strategies

Let’s assume you have four debts:

Credit Card 1 with a balance of $3,000 at 18% and a minimum monthly payment of $90;

Credit Card 2 with a balance of $5,000 at 20% and a minimum monthyl payment of $150;

Car Loan with a balance of $15,000 at 5% and a monthly fixed payment of $300;

Person Loan with a balance of $10,000 at 10% and a monthly fixed payment of $200.

Paying Off Debt Under Normal Circumstances

If you pay only the minimum required payment on each debt, it would take you a total of 67 months and a total interest payment of $12,194. Making the payments as mentioned above will take you the longest time to become debt-free and will cost you the most in interest payments.

Using the Debt Snowball Method

The Debt Snowball method prioritizes paying off the smallest debt first. In this example, the person would focus on paying off Credit Card 1 first while making minimum payments on Credit Card 2. Once Credit Card 1 is paid off, roll its payment amount of $90 into the next smallest debt (Credit Card 2), and so on. This method reduces the time it takes to pay off the debt to 48 months and almost halves the total interest payment. Just making this small change creates a big impact.

Using the Debt Avalanche Method

If you want to optimize the debt elimination further, you would follow the Debt Avalance Method. This method prioritizes debts with the highest interest rate. Here’s how it works:

Focus on paying off Credit Card 2 (20% interest) first. Once that is paid off, move to Credit Card 1 (18% interest), then the Personal Loan (10%), and lastly the Car Loan (5%). Prioritizing the highest interest payment results in a further reduction of overall interest payments to $5,350, while the amount of time it takes to pay off the debt is shortened to 44 months.

The Debt Avalanche method is faster than the Snowball and results in less interest paid overall. However, some find it less motivating if the debt with the highest interest amount also happens to be very large. If you want to see fast results, you may be better off using the Debt Snowball method.

Combining Debt Repayment with Infinite Banking

While the Snowball and Avalanche methods are powerful on their own, combining them with an Infinite Banking Policy can transform your debt repayment strategy.

What Is Infinite Banking?

Infinite Banking involves using a specially designed whole life insurance policy with a high cash value component. This policy allows you to:

Build Tax-Free Wealth: Your cash value grows tax-deferred and can be accessed tax-free.

Borrow Against Your Policy: Certain carriers offer policies that comes with a low fixed simple interest rate. If you're setting up a policy for the purpose of Infinite Banking, this may be a good fit for you.

How It Works in Debt Repayment

Fund Your Policy: You start out by funding your policy and making premium payments. While some of those payments fund the death benefit portion, the remaining amount funds the cash value portion. You then let the cash value grow while you make the minimum payments on your current debts.

Borrow Against Your Policy: Once the cash value grows sufficiently, borrow against it. Use the loan to pay off your highest-priority debt (depending on whether you use the Snowball or Avalanche method) and pay off all debt that comes with a higher interest rate than the policy loan's interest rate.

Pay Back Your Policy Loan: Roll the amount you would have paid toward the debt into repaying your policy loan. In our scenario, you would use the freed up $90 from Credit Card 1, to pay back the policy loan. Here's a neat feature: Even though you are borrowing against your policy, the money inside your cash value continues to grow in the policy as if you never borrowed it, thanks to uninterrupted compound interest.

Benefits of This Approach

Accelerated Debt Repayment: Borrowing at low simple interest often beats the high compound interest rates of traditional debts.

Tax-Free Wealth Growth: While repaying debt, you’re simultaneously building a tax-free retirement asset.

Flexibility: Policy loans have no fixed repayment schedule, giving you financial breathing room.

Final Thoughts

Choosing between the Debt Snowball and Debt Avalanche depends on your priorities. The Snowball method offers psychological wins, while the Avalanche saves more money overall. However, combining either method with Infinite Banking not only accelerates your journey to becoming debt-free but also helps you build lasting financial security.

If you’re ready to learn more about how Infinite Banking can transform your financial future, go to www.nadjadavidson.com and book your free strategy session. Let’s create a plan tailored to your unique situation!