Strategy Tab - Debt Module

Proposed payment strategy

Common debt reduction methods prioritize debt payments using a "snowball" or "avalanche" technique, which can be modeled in the Proposed Payment Strategy section of the Action Items. 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. RightCapital allows users to choose from the following strategies in the 'Payment Priority' menu:

• Highest to Lowest Interest 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.
• Lowest to Highest 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.
• Same Priority for All Debt: Debt payments will have the same priority, regardless of interest rate or balance.

Individual loan strategy

Choose which loans you would like to include in your proposed payment strategy within the Individual Loan Strategy section of the Action Items. To exclude a particular loan from the proposed payment strategy, switch to "Keep Current Payments" within the Strategy column for that loan:

You can also model a refinance for a particular loan within the Strategy menu for that loan. This will allow you to enter the cost of the refinance, the new term, and new interest rate:

Borrowers can seek to refinance their debt in order to make favorable changes in their credit agreements. In this scenario, the original contract is replaced with new terms that offer updated payment schedules, lower interest rates, and reduced monthly payments. Typically borrowers will refinance mortgages, car loans, or student loans as interest rates fall in response to changing economic conditions.