Two Debt Payoff Strategies That Work Debt Avalanche vs. Debt Snowball

Paying off your debt can be a big challenge, and it only gets more complicated when you start accumulating more accounts (e.g., student loans, credit cards, and even medical bills). The biggest headache merely is devising a plan and applying a method that best works for you. A good financial plan includes a balance between effectiveness and personal motivation.  Two well-known debt payoff strategies are the Avalanche and Snowball method.

The Avalanche Method

The Avalanche Method attacks one account at a time and prioritizes your debt payments by interest rates. It is one well-known debt payoff strategy that is both effective and easy to apply. Statistically, the avalanche method is the preferred method to pay off debt quicker while paying less interest. Statistically, the avalanche method is the preferred method to pay off debt quicker while paying less interest.

 

Here is how it works:

1. List all your accounts in descending order by interest rates from highest to lowest.
2. Calculate how much you can pay above the minimum payment. You may want to budget your monthly expenses to see where you can save extra money.
3. Pay as much extra money toward the account with the highest interest rate and only pay the required monthly minimum on all the other accounts.
4. After paying off one account then tackle the next account with the highest interest rate.

The Snowball Method

The Snowball method attacks one account at a time by paying down your smallest debt first. Once one account is paid off, you roll in the previous payment amount into your next account with the largest balance. With every account, you pay off, your potential payment amount toward larger balances grows bigger and bigger like a snowball.

Here is how it works:

1. List all your accounts in ascending order by amount owed from low to high.
2. Calculate how much you can pay above the minimum payment. You may want to budget your monthly expenses to see where you can save extra money.
3. Pay as much extra money toward the account with the lowest balance and only pay the required monthly minimum on all the other accounts.
4. After paying off one account then tackle the next account with the next largest balance.

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