Now that you have made the decision to become debt free, should you start with the debt snowball or the debt avalanche? I’ll break it down for you to help make the choice easier.
– List out all your debts in order of amount owed– Start at the smallest debt up to the largest debt– After the debts are lined up, you pay the minimum payment on all debts except for the lowest amount. You pay the lowest debt off as fast as you can– As the lowest debt is paid off, move to the next one and so on until you have paid off all the debt
– Great to help people stay motivated - Quick wins at the beginning to help people see success and keep moving - Provides a clear plan on how to get out of debt– Perfect for people who easily lose motivation or have trouble completing tasks
– Takes longer to get out of debt compared to the Debt Avalanche– Pay more in interest with this method than the Debt Avalanche– Ignores interest rates which can tack on more debt to the larger loans
The Debt Avalanche is mathematically the best way to pay off debt. It focuses on paying off debt the quickest but requires a substantial amount of discipline.
– List out all your debts in order of interest rate– Start with the largest interest rate down to the smallest interest rate– After the debts are lined up, pay the minimum payment on all debts except for the one with the highest interest rate. Pay the highest interest rate debt off first as fast as you can– As the highest interest rate debt is paid off, move to the next one and so on until you have paid off all the debt
– The quickest way to pay off debt - By eliminating high-interest rates first, it cuts down on the amount of debt being added to the other loan - Saves you money in the long run - Provides a clear plan on how to get out of debt– Perfect for people who are disciplined and don’t quit easily