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Domino Strategy

Mark Cappel
UpdatedDec 7, 2023

I have credit card and student loan debt. Should I use the domino strategy to pay-off my loans quickly at the lowest cost?

I'm thinking about deferring a student loan for a year(the max allowed) with a balance of $16,000 interest rate of 6.5% and term of 10 years. I want to take the $205 payment a month to pay a CC debt off a year early. The CC is under a debt management program and has a balance of $4,700 interest rate of 9.00% and payment of $190. This will leave me more disposable income in the future to add to the student loan and fund retirement. The downside is I lose any deferral for the remainder of the loan and $1,000 will accrue on the loan. The savings on the credit card interest would only be $200. Need your thoughts.

The "debt avalanche" or "domino strategy" is where you maximize payments on the highest-interest account, and minimum payments on all others. Once you are done making payments on the highest interest account, you maximize payments on the next highest. Then move on down the line until all debt is retired.

You are proposing to follow the avalanche or domino strategy, and it is one I like because it retires debt at the lowest cost in interest. It is also effective because it tends to build a person's credit score. I think your plan is sound.

I hope this information helps you Find. Learn & Save.



Struggling with debt?

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q3 2023 was $17.291 trillion. Student loan debt was $1.599 trillion and credit card debt was $1.079 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Alabama credit card delinquency rate was 5%, and the median credit card debt was $378.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.