The 2 ways to pay off debt

Are you tired of feeling overwhelmed by your debt? Don’t worry, you’re not alone. Many of us are in the same boat, and it can feel like you’re stuck in a never-ending cycle of payments and interest. But have you ever heard of the snowball and avalanche method of paying off your debt? These strategies can help you get out of debt faster, and save you a ton of money in interest.

Snowball method

First, let’s start with the snowball method. This strategy is based on the idea that paying off your smallest debt first will give you a sense of accomplishment and motivation to tackle the next one. It’s like a snowball rolling down a hill, gaining momentum as it goes. Here’s how it works:

1. List all of your debts from smallest to largest, regardless of the interest rate.
2. Pay the minimum payment on all of your debts, except for the smallest one.
3. Apply all extra money to the smallest debt until it’s paid off.
4. Once the smallest debt is paid off, move on to the next one and repeat the process.

Graph.1 | The Snowball method over time. This method pays off the smallest balance first. The graph shows the “snowballig” amount and the decreasing interest rate over time (link to tool: FinancesByFederico — Etsy UK).

This method is great for those who need a quick win to stay motivated, and it can also have a psychological benefit as it gives you a sense of accomplishment every time you pay off a debt. However, it doesn’t necessarily save you the most money in interest over time.

Avalanche method

Now, let’s talk about the avalanche method. This strategy is based on the idea that paying off your debt with the highest interest rate first will save you the most money in the long run. It’s like an avalanche of savings! Here’s how it works:

1. List all of your debts from highest interest rate to lowest interest rate.
2. Pay the minimum payment on all of your debts, except for the one with the highest interest rate.
3. Apply all extra money to the debt with the highest interest rate until it’s paid off.
4. Once the debt with the highest interest rate is paid off, move on to the next one and repeat the process.

Graph.2 | The Avalanche method over time. This method pays off the highest interest rate first. The graph shows the “snowballig” amount and the decreasing interest rate (link to tool: FinancesByFederico — Etsy UK)

The Avalanche method is the more financially sound approach as it prioritizes the high interest rate debts which can accumulate more interest over time , it can help you save a significant amount of money on interest, but it may not be as emotionally satisfying as the snowball method.

Which one to choose?

Now, you might be wondering, which method is better? The answer is, it depends on your personality and financial situation. If you need a quick win to stay motivated, the snowball method may be better for you. But if you’re more financially focused and want to save the most money on interest, the avalanche method may be a better fit.

Now, let’s see how it affects the total interest paid over time with an example: If you have two debts, one with a balance of $10,000 and an interest rate of 10% and another one with a balance of $15,000 and an interest rate of 20%. If you use the snowball method, you will end up paying off the $10,000 interest debt first, but you will pay more in total interest over time ($26,337 interest in graph 1) . On the other hand, if you use the avalanche method, you will end up paying off the 20% interest debt first, which will result in less total interest paid over time ($18,475 interest in graph 2).

As you can see, both methods have their pros and cons, but whichever method you choose, the most important thing is to take action and start paying off your debt. Remember, you don’t have to face this alone! A financial advisor can help you create a personalized plan that works for you.

I am trying to repay my student loan myself, and to understand the mechanism of paid interests better I use a tool I created, Credit Crusher 🔨💰. This tool stores my credit and helps me decide how much to pay every month to extinguish my debt. I have just decided to use an Avalanche payment method because I don’t have many expenses at the moment and would like to finish all my payments by the February 2026 😎. If you also want the same tool you can find it here: FinancesByFederico — Etsy UK 🔍

In conclusion, paying off your debt can be challenging, but with the right mindset and approach, you can get out of debt faster and save yourself a ton of money in interest. Just remember to be consistent, and have fun with it! You can even have a friendly competition with yourself, to see which method saves you more money, or which one you can pay off faster. No matter which method you choose, the most important thing is to take action and get started on the road to debt-free living.

This write-up serves informational purposes only. It should not be considered explicit financial or legal advice. Not all information will be accurate. Before making any serious financial decisions, consult a professional.

If you enjoy money stories and anything about growing your money, FOLLOW WikiMonday.

Read more stories like this by subscribing to The WikiMonday Bulletin

WikiMonday