RightCapital's dedicated debt management tool allows advisors to easily demonstrate the value of eliminating debt in a financial plan using specific debt reduction strategies. The debt module can be found within the ... More Menu > Debt tab of each client plan:
The Strategy Tab is where you can select a new Payment Priority for the client's debts. To add a loan to a payment priority strategy, select the Priority option in the strategy dropdown:
When selecting the prioritize option, a new selection will appear at the bottom of the action items:
Here, you can select one of two payment priority strategies:
- Prioritize Highest Rate: Prioritizing debt payments from the highest to the lowest interest rate is known as the "debt avalanche" strategy. This saves money on interest payments by quickly paying down the principal balance on high-interest debt. This method reduces the interest accruing on debts which can heavily impact total costs.
- Prioritize Balance: Prioritizing debt payments from lowest to highest balance is known as the "debt snowball strategy". This strategy allows clients to gain momentum by paying off multiple debts in a short period of time. Although this strategy saves less on interest when compared to the "debt avalanche" method, it can offer encouragement for clients who are overwhelmed with multiple debt payments.
In each strategy, the minimum payments are met but the total monthly debt payments do not decrease as the debt is paid off. Instead, as each liability is eliminated, the previous payment gets rolled into the next prioritized debt. Additionally, you have the option to shift available cash flow towards the prioritized debt as additional payments.
Your new Payment Priority can be reflected instantly within any proposed plan in the Retirement > Analysis section, by scrolling down to the Action Items and toggling on the Debt Proposal:
