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How To Be Debt-Free: Snowball vs. Avalanche Method

Apr 27, 2022 | Finance, Saving Money

Trying to pay off debt can be overwhelming, but using the right strategies can help. The kind of approach you take can determine how fast you pay off your debt, how much interest you pay, and how motivated you are to continue your debt-free journey. 

While there isn’t any one “best way” on how to get out of debt fast, there are a couple approaches you can take depending on your debt situation. 

Snowball Method

The snowball method simply means paying off your smallest debt as fast as possible. You can make a list of all your debt from the smallest amount you owe to the largest amount you owe. You then focus on paying off the smallest debt that you owe with as much money as you can, and pay monthly minimums on the rest of the debt you owe. 

Once you erase that debt, you take the money you were putting toward that payment, and use it to pay the next smallest debt. This process would continue until all of your debt is paid off. You begin to “snowball” and eliminate one debt at a time.

While you may pay more interest using this approach, you see progress faster which may keep you motivated in your debt-free journey, and overtime, you have less types of debt you need to manage. 

Avalanche Method

In contrast, the avalanche method focuses on paying the debt with the highest interest rate. You can make a list of all your debt from highest interest rate to lowest interest rate. You focus on paying off the debt with the highest interest rate, and make monthly minimum payments on all other debt. 

Once you have paid off the loan with the highest interest, you begin to pay of the debt with the second highest interest, and so forth.

With this approach you pay the least amount of interest over time, therefore paying less overall. However, it may take you a while to pay off debt this way, depending on the size of your high-interest debts. It may become discouraging and make it difficult for some to stick to this plan, as paying off smaller debts faster can feel more rewarding. 

Either way, paying off debt takes a lot of patience. The important thing to remember is to stay motivated by sticking to your goal. Having a clear goal helps you stay focused so that you can become debt-free.