If you’ve found yourself in debt, it can be a scary situation. You owe money and with the interest accruing, the debt will keep getting bigger if you don’t pay it down. However, it can be difficult to know how to begin paying off your debt and intimidating to confront the issue. That’s where we come in – in this article, we’ll be discussing two tried and true debt-crushing methods. You’ll learn the steps to both processes, see the pros and cons of each, and be able to figure out which method will be most effective for your own, personal situation. Ready to crush that debt for good? Let’s learn about the snowball and avalanche methods of paying off your debt:
The snowball method begins with paying off your smallest debt first, then putting that monthly payment into your next smallest debt, so on and so forth, until your debts are all paid off. Here are the steps to building momentum and “snowballing” payments until you are debt-free:
The snowball method is an effective means of paying down your debt, but there are advantages and disadvantages to choosing this method. The biggest pro of the snowball method is that you get quick wins as you watch your small debts get paid off relatively early, making it easier to keep up motivation and momentum. On the other hand, the snowball method does not consider interest rates, so it’s likely that you will pay more in interest before your debts are cleared than by using another method. However, for those who need positive reinforcement to stick to their debt-crushing plans, this is a much more preferable path compared to getting deeper and deeper into debt!
The avalanche method works similarly to the snowball method, except you’ll be focusing on interest rates rather than the size of your debt. This method involves organizing your debts by the highest interest rates and paying off those debts first before moving onto your second-highest interest rate debt, and so on. Here are the steps to the avalanche method of debt repayment:
Like the snowball method, there are potential positives and negatives to pursuing the avalanche method of debt reduction. The biggest pro of the avalanche method is your savings on interest. By prioritizing the higher interest rates to pay off first, in the long run, you’re saving yourself the most money because you will be free of the most expensive interest payments first. However, the flip side of the coin leads to the biggest con of the avalanche method: it may be difficult to stay motivated. In contrast to the snowball method, if you use the avalanche method, you may not experience any quick wins – in fact, it might take a while before you clear even your first debt. While this is usually most financially beneficial long term, it might be frustrating in the early going.
When it comes to the snowball and avalanche methods of paying off debt, the end goal is the same, only the means of reaching it are different. We have broken down each method’s steps and discussed the pros and cons of them, however there is an important part of the equation still to consider: you. As mentioned, one of the big differences between these two methods is the early results – the snowball method provides easier early wins, while the avalanche method is more geared towards the long term. Both of these can work well, but it’s important to choose the one that works for you. If you know that you will need some quick wins to stay motivated, then the snowball method might work best. If you can keep your eye on the ultimate goal and rest easy knowing you’re maximizing your interest rate savings despite not getting early wins, then the avalanche method could be the path for you. It’s important to factor in your own personality when choosing how you’re going to crush your debt because it doesn’t really matter at the end of the day which method you choose as long as you make progress towards being debt-free!