[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.68,0:00:02.87,Default,,0000,0000,0000,,Let's say that these four items here
Dialogue: 0,0:00:02.87,0:00:04.50,Default,,0000,0000,0000,,represent your outstanding debt.
Dialogue: 0,0:00:04.50,0:00:06.00,Default,,0000,0000,0000,,So, the first number in each row
Dialogue: 0,0:00:06.00,0:00:07.75,Default,,0000,0000,0000,,is the outstanding loan balance.
Dialogue: 0,0:00:07.75,0:00:08.84,Default,,0000,0000,0000,,For example, this credit card,
Dialogue: 0,0:00:08.84,0:00:11.65,Default,,0000,0000,0000,,you have $500 outstanding balance.
Dialogue: 0,0:00:11.65,0:00:15.50,Default,,0000,0000,0000,,The second number is your APR, 15% for the credit card,
Dialogue: 0,0:00:15.50,0:00:18.02,Default,,0000,0000,0000,,30% for the retail card, 10% for this loan,
Dialogue: 0,0:00:18.02,0:00:19.69,Default,,0000,0000,0000,,5% for this loan.
Dialogue: 0,0:00:19.69,0:00:21.15,Default,,0000,0000,0000,,And then the last number I have listed here
Dialogue: 0,0:00:21.15,0:00:22.42,Default,,0000,0000,0000,,is your minimum payment.
Dialogue: 0,0:00:22.42,0:00:23.92,Default,,0000,0000,0000,,So, you have a minimum payment every month.
Dialogue: 0,0:00:23.92,0:00:27.53,Default,,0000,0000,0000,,Let's see, 20 plus 30 is 50, plus another 150.
Dialogue: 0,0:00:27.53,0:00:31.45,Default,,0000,0000,0000,,You have a minimum payment every month of $200.
Dialogue: 0,0:00:32.84,0:00:35.35,Default,,0000,0000,0000,,And your total outstanding loan,
Dialogue: 0,0:00:35.35,0:00:38.73,Default,,0000,0000,0000,,your total outstanding loan balance is, let's see.
Dialogue: 0,0:00:38.73,0:00:42.05,Default,,0000,0000,0000,,This is 3,500 plus 500 is 4,000 plus 4,000 is 8,000,
Dialogue: 0,0:00:42.05,0:00:44.18,Default,,0000,0000,0000,,plus another 2,000 is 10,000.
Dialogue: 0,0:00:44.18,0:00:45.69,Default,,0000,0000,0000,,So, you owe $10,000.
Dialogue: 0,0:00:45.69,0:00:47.78,Default,,0000,0000,0000,,Your minimum payment is $200.
Dialogue: 0,0:00:47.78,0:00:49.52,Default,,0000,0000,0000,,But let's say that you have more than $200
Dialogue: 0,0:00:49.52,0:00:50.71,Default,,0000,0000,0000,,to pay every month.
Dialogue: 0,0:00:50.71,0:00:53.33,Default,,0000,0000,0000,,Let's say that you have $300,
Dialogue: 0,0:00:53.33,0:00:55.58,Default,,0000,0000,0000,,$300 every month available.
Dialogue: 0,0:00:56.70,0:00:58.59,Default,,0000,0000,0000,,So, the question is, what do you do
Dialogue: 0,0:00:58.59,0:01:00.13,Default,,0000,0000,0000,,after you pay the minimum payments?
Dialogue: 0,0:01:00.13,0:01:02.43,Default,,0000,0000,0000,,What do you do with that extra hundred dollars?
Dialogue: 0,0:01:02.43,0:01:04.17,Default,,0000,0000,0000,,As you can imagine, I'm going to tell you
Dialogue: 0,0:01:04.17,0:01:08.08,Default,,0000,0000,0000,,that you should use that to pay down your debt
Dialogue: 0,0:01:08.08,0:01:10.16,Default,,0000,0000,0000,,so that you can pay it down as fast as possible.
Dialogue: 0,0:01:10.16,0:01:10.100,Default,,0000,0000,0000,,But then you might say,
Dialogue: 0,0:01:10.100,0:01:12.67,Default,,0000,0000,0000,,"Well, which debt do I pay down first?
Dialogue: 0,0:01:12.67,0:01:14.63,Default,,0000,0000,0000,,"Do I just split that $400 four ways
Dialogue: 0,0:01:14.63,0:01:17.26,Default,,0000,0000,0000,,"to pay off 25 more than each of these minimum payments?
Dialogue: 0,0:01:17.26,0:01:19.54,Default,,0000,0000,0000,,"Do I pay the largest amount first,
Dialogue: 0,0:01:19.54,0:01:20.84,Default,,0000,0000,0000,,"the smallest amount first?
Dialogue: 0,0:01:20.84,0:01:23.09,Default,,0000,0000,0000,,"Do I pay the highest interest first?"
Dialogue: 0,0:01:23.09,0:01:26.03,Default,,0000,0000,0000,,And those are all possible ways of doing it
Dialogue: 0,0:01:26.03,0:01:29.60,Default,,0000,0000,0000,,but the mathematically optimal way of doing it
Dialogue: 0,0:01:29.60,0:01:33.18,Default,,0000,0000,0000,,is to pay down the highest cost debt first.
Dialogue: 0,0:01:34.32,0:01:38.49,Default,,0000,0000,0000,,So, that method is often called the high rate method.
Dialogue: 0,0:01:42.54,0:01:44.38,Default,,0000,0000,0000,,Where you want to pay down your highest,
Dialogue: 0,0:01:44.38,0:01:46.44,Default,,0000,0000,0000,,your most costly debt first.
Dialogue: 0,0:01:46.44,0:01:48.63,Default,,0000,0000,0000,,Which in this case is the retail card.
Dialogue: 0,0:01:48.63,0:01:51.30,Default,,0000,0000,0000,,So, the order in which you would pay it is,
Dialogue: 0,0:01:51.30,0:01:53.45,Default,,0000,0000,0000,,the order in which you would pay it is--
Dialogue: 0,0:01:53.45,0:01:54.75,Default,,0000,0000,0000,,You would pay all the minimum payments
Dialogue: 0,0:01:54.75,0:01:57.21,Default,,0000,0000,0000,,and then any extra money that you would have,
Dialogue: 0,0:01:57.21,0:02:01.51,Default,,0000,0000,0000,,you would put it towards the retail card first.
Dialogue: 0,0:02:01.51,0:02:04.33,Default,,0000,0000,0000,,Once the retail card is paid off,
Dialogue: 0,0:02:04.33,0:02:05.47,Default,,0000,0000,0000,,let's see, after that the credit card
Dialogue: 0,0:02:05.47,0:02:07.52,Default,,0000,0000,0000,,has the next highest interest.
Dialogue: 0,0:02:07.52,0:02:09.10,Default,,0000,0000,0000,,So, copy and paste.
Dialogue: 0,0:02:10.26,0:02:14.41,Default,,0000,0000,0000,,Then, these two loans, they're already in order, 10%, 5%.
Dialogue: 0,0:02:14.41,0:02:17.81,Default,,0000,0000,0000,,So, I'm just ordering these form highest interest cost
Dialogue: 0,0:02:17.81,0:02:19.81,Default,,0000,0000,0000,,to lowest interest cost.
Dialogue: 0,0:02:22.66,0:02:24.99,Default,,0000,0000,0000,,In this world, you would want to,
Dialogue: 0,0:02:24.99,0:02:26.59,Default,,0000,0000,0000,,essentially, rank them in this way.
Dialogue: 0,0:02:26.59,0:02:28.93,Default,,0000,0000,0000,,You obviously have to pay their minimum payments
Dialogue: 0,0:02:28.93,0:02:31.36,Default,,0000,0000,0000,,every month which is $200 but then I would take
Dialogue: 0,0:02:31.36,0:02:34.51,Default,,0000,0000,0000,,that extra hundred dollars that you have available
Dialogue: 0,0:02:34.51,0:02:36.63,Default,,0000,0000,0000,,and put it to the most costly debt.
Dialogue: 0,0:02:36.63,0:02:40.20,Default,,0000,0000,0000,,So, I would put that extra hundred dollars right over here
Dialogue: 0,0:02:40.20,0:02:43.44,Default,,0000,0000,0000,,and try to pay this one down as fast as possible.
Dialogue: 0,0:02:43.44,0:02:47.21,Default,,0000,0000,0000,,Once that is paid off, then I would put any extra you have
Dialogue: 0,0:02:47.21,0:02:49.56,Default,,0000,0000,0000,,after the minimum payments to the credit card.
Dialogue: 0,0:02:49.56,0:02:51.65,Default,,0000,0000,0000,,And once that's paid off as well, then to loan A.
Dialogue: 0,0:02:51.65,0:02:53.54,Default,,0000,0000,0000,,Once that's paid off, to loan B
Dialogue: 0,0:02:53.54,0:02:57.74,Default,,0000,0000,0000,,and hopefully you are then, you might be then debt-free.
Dialogue: 0,0:02:57.74,0:03:00.55,Default,,0000,0000,0000,,If you did the high rate method right over here,
Dialogue: 0,0:03:00.55,0:03:02.88,Default,,0000,0000,0000,,you would, and you don't incur any new debt,
Dialogue: 0,0:03:02.88,0:03:06.13,Default,,0000,0000,0000,,you would be debt-free after 47 months.
Dialogue: 0,0:03:08.45,0:03:10.52,Default,,0000,0000,0000,,And you would pay an aggregate interest
Dialogue: 0,0:03:10.52,0:03:12.77,Default,,0000,0000,0000,,of approximately 39, $3,904
Dialogue: 0,0:03:16.04,0:03:18.79,Default,,0000,0000,0000,,in interest over those 47 months.
Dialogue: 0,0:03:20.97,0:03:22.74,Default,,0000,0000,0000,,So, you say, "Okay, Sal, I get it.
Dialogue: 0,0:03:22.74,0:03:26.80,Default,,0000,0000,0000,,"This is the mathematically optimal thing to do
Dialogue: 0,0:03:26.80,0:03:29.29,Default,,0000,0000,0000,,"to get rid of your most costly thing first
Dialogue: 0,0:03:29.29,0:03:31.26,Default,,0000,0000,0000,,"which makes sense`and then your next costly thing
Dialogue: 0,0:03:31.26,0:03:33.33,Default,,0000,0000,0000,,"and then on and on."
Dialogue: 0,0:03:33.33,0:03:36.76,Default,,0000,0000,0000,,But you tell me, "Well, you know, psychology matters here.
Dialogue: 0,0:03:36.76,0:03:40.19,Default,,0000,0000,0000,,"Psychology, maybe, got me into this debt a little bit.
Dialogue: 0,0:03:40.19,0:03:43.93,Default,,0000,0000,0000,,"So, for me, I don't like having my brain always thinking
Dialogue: 0,0:03:43.93,0:03:46.46,Default,,0000,0000,0000,,"about all of these four pieces of debt.
Dialogue: 0,0:03:46.46,0:03:49.83,Default,,0000,0000,0000,,"So, I would just love to maybe not have to worry
Dialogue: 0,0:03:49.83,0:03:51.20,Default,,0000,0000,0000,,"about four things and get to worrying
Dialogue: 0,0:03:51.20,0:03:52.85,Default,,0000,0000,0000,,"about three things as soon as possible
Dialogue: 0,0:03:52.85,0:03:55.03,Default,,0000,0000,0000,,"and then two things as soon as possible."
Dialogue: 0,0:03:55.03,0:03:57.19,Default,,0000,0000,0000,,So, if you think that is helpful,
Dialogue: 0,0:03:57.19,0:03:58.45,Default,,0000,0000,0000,,there is a method where you say,
Dialogue: 0,0:03:58.45,0:04:01.56,Default,,0000,0000,0000,,"Okay, I'm gonna pay my smallest balance first
Dialogue: 0,0:04:01.56,0:04:03.48,Default,,0000,0000,0000,,"to just get that out of the way."
Dialogue: 0,0:04:03.48,0:04:05.87,Default,,0000,0000,0000,,Now, keep in mind, if that works for you,
Dialogue: 0,0:04:05.87,0:04:08.07,Default,,0000,0000,0000,,if that psychologically allows you to say,
Dialogue: 0,0:04:08.07,0:04:09.61,Default,,0000,0000,0000,,"Okay, that hundred dollars
Dialogue: 0,0:04:09.61,0:04:12.20,Default,,0000,0000,0000,,"is gonna make a bigger dent here," that's great.
Dialogue: 0,0:04:12.20,0:04:14.24,Default,,0000,0000,0000,,That's actually called the snowball method.
Dialogue: 0,0:04:14.24,0:04:15.33,Default,,0000,0000,0000,,Let me write here.
Dialogue: 0,0:04:15.33,0:04:17.28,Default,,0000,0000,0000,,The idea is a snowball, you get one debt out of the way
Dialogue: 0,0:04:17.28,0:04:18.65,Default,,0000,0000,0000,,and then you snowball into the next.
Dialogue: 0,0:04:18.65,0:04:21.50,Default,,0000,0000,0000,,But that, just to be clear is not mathematically optimal.
Dialogue: 0,0:04:21.50,0:04:23.42,Default,,0000,0000,0000,,It will take you longer to pay your debt
Dialogue: 0,0:04:23.42,0:04:24.80,Default,,0000,0000,0000,,and you will pay more interest.
Dialogue: 0,0:04:24.80,0:04:26.24,Default,,0000,0000,0000,,But, I'll just write that down
Dialogue: 0,0:04:26.24,0:04:29.91,Default,,0000,0000,0000,,because the important thing is that you feel
Dialogue: 0,0:04:31.08,0:04:32.40,Default,,0000,0000,0000,,that you should put the hundred dollars
Dialogue: 0,0:04:32.40,0:04:34.20,Default,,0000,0000,0000,,to paying down the debt that you don't use it
Dialogue: 0,0:04:34.20,0:04:35.70,Default,,0000,0000,0000,,for something else.
Dialogue: 0,0:04:35.70,0:04:37.62,Default,,0000,0000,0000,,So, the snowball method
Dialogue: 0,0:04:43.70,0:04:46.09,Default,,0000,0000,0000,,would order these things differently.
Dialogue: 0,0:04:46.09,0:04:48.86,Default,,0000,0000,0000,,Under the snowball method, you would put your--
Dialogue: 0,0:04:48.86,0:04:51.42,Default,,0000,0000,0000,,Let's see, your credit card has the smallest loan balance.
Dialogue: 0,0:04:51.42,0:04:53.40,Default,,0000,0000,0000,,So, let me put that first.
Dialogue: 0,0:04:53.40,0:04:54.99,Default,,0000,0000,0000,,So, copy and paste.
Dialogue: 0,0:04:56.24,0:04:58.21,Default,,0000,0000,0000,,That's your credit card.
Dialogue: 0,0:04:58.21,0:05:01.23,Default,,0000,0000,0000,,Then, after that, let's see, you have loan A.
Dialogue: 0,0:05:01.23,0:05:03.16,Default,,0000,0000,0000,,You have loan A here.
Dialogue: 0,0:05:03.16,0:05:05.58,Default,,0000,0000,0000,,So, let me copy and paste that.
Dialogue: 0,0:05:05.58,0:05:08.17,Default,,0000,0000,0000,,Copy and paste loan A.
Dialogue: 0,0:05:08.17,0:05:10.75,Default,,0000,0000,0000,,Then you have loan B.
Dialogue: 0,0:05:10.75,0:05:11.67,Default,,0000,0000,0000,,So, loan B.
Dialogue: 0,0:05:13.09,0:05:16.03,Default,,0000,0000,0000,,Oh, actually, yup, then you have loan B.
Dialogue: 0,0:05:16.03,0:05:17.28,Default,,0000,0000,0000,,Copy and paste.
Dialogue: 0,0:05:18.54,0:05:21.07,Default,,0000,0000,0000,,And then you have your retail card.
Dialogue: 0,0:05:21.07,0:05:22.97,Default,,0000,0000,0000,,And then you have your retail card.
Dialogue: 0,0:05:22.97,0:05:27.75,Default,,0000,0000,0000,,And you could see why this isn't gonna work out well.
Dialogue: 0,0:05:27.75,0:05:30.84,Default,,0000,0000,0000,,Why this isn't gonna work out well mathematically
Dialogue: 0,0:05:30.84,0:05:32.84,Default,,0000,0000,0000,,'cause you're leaving your most expensive--
Dialogue: 0,0:05:32.84,0:05:35.87,Default,,0000,0000,0000,,You're paying just the minimum on your most expensive,
Dialogue: 0,0:05:35.87,0:05:38.25,Default,,0000,0000,0000,,on your most expensive debt.
Dialogue: 0,0:05:38.25,0:05:41.30,Default,,0000,0000,0000,,Not only is it expensive, it's expensive on a large amount.
Dialogue: 0,0:05:41.30,0:05:43.58,Default,,0000,0000,0000,,But, let's just go through the...
Dialogue: 0,0:05:43.58,0:05:47.28,Default,,0000,0000,0000,,So, you might find it more psychologically easy
Dialogue: 0,0:05:47.28,0:05:49.77,Default,,0000,0000,0000,,to do this method because you at least get rid
Dialogue: 0,0:05:49.77,0:05:52.85,Default,,0000,0000,0000,,of the credit card debt a lot faster.
Dialogue: 0,0:05:54.70,0:05:56.81,Default,,0000,0000,0000,,You'll get down to only three sources of debt
Dialogue: 0,0:05:56.81,0:05:59.56,Default,,0000,0000,0000,,versus four much, much faster.
Dialogue: 0,0:05:59.56,0:06:01.64,Default,,0000,0000,0000,,So, in this situation, you would pay down
Dialogue: 0,0:06:01.64,0:06:03.84,Default,,0000,0000,0000,,the credit card first.
Dialogue: 0,0:06:03.84,0:06:05.75,Default,,0000,0000,0000,,So, you'd be able to knock these off faster.
Dialogue: 0,0:06:05.75,0:06:08.31,Default,,0000,0000,0000,,But, just so you make sure, there is a trade off.
Dialogue: 0,0:06:08.31,0:06:11.81,Default,,0000,0000,0000,,In this one, it's gonna take you 54 months
Dialogue: 0,0:06:12.68,0:06:13.62,Default,,0000,0000,0000,,to pay of your debt.
Dialogue: 0,0:06:13.62,0:06:16.39,Default,,0000,0000,0000,,So, seven months longer, more than half a year longer.
Dialogue: 0,0:06:16.39,0:06:18.19,Default,,0000,0000,0000,,You're going to be making payments.
Dialogue: 0,0:06:18.19,0:06:21.64,Default,,0000,0000,0000,,And you're going to pay almost double in interest.
Dialogue: 0,0:06:21.64,0:06:25.81,Default,,0000,0000,0000,,You're gonna pay 6,000, approximately $6,000 in interest
Dialogue: 0,0:06:27.73,0:06:30.36,Default,,0000,0000,0000,,in this situation versus
Dialogue: 0,0:06:30.36,0:06:32.68,Default,,0000,0000,0000,,I guess about 50% more.
Dialogue: 0,0:06:32.68,0:06:34.46,Default,,0000,0000,0000,,So, here you're paying almost 4,000 in interest.
Dialogue: 0,0:06:34.46,0:06:38.68,Default,,0000,0000,0000,,Here you're paying roughly $6,000 in interest
Dialogue: 0,0:06:38.68,0:06:40.27,Default,,0000,0000,0000,,over the 54 months.
Dialogue: 0,0:06:42.74,0:06:45.02,Default,,0000,0000,0000,,The mathematically rational one to do
Dialogue: 0,0:06:45.02,0:06:46.79,Default,,0000,0000,0000,,would be the high rate method.
Dialogue: 0,0:06:46.79,0:06:50.37,Default,,0000,0000,0000,,But this is, you know, whatever it does.
Dialogue: 0,0:06:50.37,0:06:53.00,Default,,0000,0000,0000,,Assuming you have the money, as long as you put it
Dialogue: 0,0:06:53.00,0:06:55.07,Default,,0000,0000,0000,,down towards your debt, at least you're making progress.
Dialogue: 0,0:06:55.07,0:06:57.30,Default,,0000,0000,0000,,And this is a method that some people might want to use
Dialogue: 0,0:06:57.30,0:06:59.38,Default,,0000,0000,0000,,more for psychological purposes.
Dialogue: 0,0:06:59.38,0:07:02.03,Default,,0000,0000,0000,,I have to admit, I have done this where I just wanted
Dialogue: 0,0:07:02.03,0:07:05.67,Default,,0000,0000,0000,,some debt out of the way so I pay down the small one first.
Dialogue: 0,0:07:05.67,0:07:07.54,Default,,0000,0000,0000,,But, if you really want to optimize
Dialogue: 0,0:07:07.54,0:07:09.93,Default,,0000,0000,0000,,for interest payments and paying down fast,
Dialogue: 0,0:07:09.93,0:07:13.81,Default,,0000,0000,0000,,you want to take out your costliest things first.