Debt Avalanche or Debt Snowball?

It’s time to pay down your debt.

In order to take control of your finances you need a plan.

Here are the two most popular debt repayment methods, the debt avalanche and the debt snowball.

Getting caught up between these two debt repayment methods should be the least of your worries.

Don’t think too much into it.

Pick one and start aggressively paying down your debt!

Let’s start by going over the debt avalanche payment method.

The key to effectively using this method is to line up all of your debt (medical bills, credit cards, car loans and any other debt you might have) by the highest interest rate to the lowest interest rate.

After you figure out the interest rates you are paying on your debts your goal is to start aggressively paying off the highest interest rate debt first.

You will only pay the minimum payment on the other debts you have.

Once the highest interest debt is repaid you then take all of the money you were using to repay that bill and move it on to pay the next debt.

Now the second highest interest debt you had is getting paid off with the entire amount you were paying on debt one plus the minimum payment you were already paying on it.

That is why this method is known as the debt avalanche.

Your debt starts falling one by one and continues down until all of your debt it paid off.

Now let’s discuss the debt snowball method.

Essentially the debt snowball is the same as the debt avalanche but with one key difference.

Instead of first paying the debt with the highest interest rate your goal is to start paying off the debt with the lowest balance. You ignore the interest rate completely.

Using the debt snowball you would line up all of your debts from lowest balance to highest balance and then start aggressively paying off the lowest balance first while continuing to pay the minimum on the remaining debts.

Again, once you repay the first debt use all of the money you were paying and roll it into your payment on the next lowest balance bill.

This continues until all of your debts are paid off.

Personally I like the debt snowball method more than the debt avalanche method.

Why?

I like to win!

The debt snowball method allows you to see success faster than with the avalanche method.

Paying off the smaller balances first allows your mind to see that this debt repayment process is actually working.

Bills are disappearing!

You can see your progress faster.

For me the snowball method is more of a psychology hack than it is a financial one.

But for some of you the avalanche method makes more sense because of the interest savings you will receive. If you can stick with it for the long haul, go for it!

Paying down your debt and living a debt free lifestyle is the easiest and most secure way to building wealth.

You can’t go wrong with either method.

Remember, paying off your debt is not an overnight process.

Pick a method, stick to it and over time you will slowly get yourself out of debt.

Good luck!

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