What are Some Alternative Debt Reduction Methods?

The snowball method — a way of paying down debt by paying more toward the smallest debt and then “snowballing” that money towards your next largest debt — has a lot of fans and critics. Both have come up with their own methods of paying off debt. It’s good to remember that even if a system seems to work for everyone else, you can still tweak it to fit your own needs.

Here are a few debt reduction methods from J.D. Byrider, who specializes in personal finance and buy here pay here vehicle financing.

The Avalanche Method

The avalanche method of debt reduction has its roots in the criticism of Dave Ramsey’s snowball method. Instead of listing your debts out by the smallest to the largest balance, you list them by the largest to the smallest interest rates. The idea here is that you’re saving money by focusing on paying off high-interest debts first. Mathematically, it’s a smarter choice than the snowball method, but you may find yourself losing steam without the smaller wins of the snowball method. If you do, you can always console yourself by looking at how much money you’ll save by following this plan. This calculator will help you figure out which method you should use and what your savings could be.

Creating Your Own Motivation

The basic principle of the snowball method is that people need motivation to continue their debt reduction methods. As anyone who has lost interest in a diet about the time they came across a cake or pizza in the office break room knows, motivation is hard. Don’t expect to follow any debt reduction strategy without a little help. App Stickk is designed to help you stick with any goal you may have. It lets you use social accountability and a commitment contract that actually puts up a financial stake to keep you on the right track to your goal. You can use pre-planned goals or set up a customized one, such as paying $50 extra toward a bill each month. Stickk can help you stay on track.

“Scared Straight” Snowball Savings Plan

This is a direct variation from the snowball plan, designed to leave you with extra in your savings account. It’s less financially effective, but it does leave you with a nice cushion of savings. This method comes from Trent Hamm at The Simple Dollar. He recommends making the minimum payments on all of your debts, and then putting the extra money straight into a high-yield savings account. Once your savings account total has reached 30% more than your smallest debt, you can pay that off completely and use the extra you were paying for the minimum to fill up your savings account quicker. The thinking behind this is simply to pay off your debts while having a larger emergency fund.

Remember, the right debt reduction plan will be the one that works the best for you, not the one with the highest ratings. You need to know your priorities, whether that’s paying fewer bills, getting the most out of your money or building your savings account. Once you know that, you can choose the right plan for you.