Is a Debt Snowball or Debt Avalanche better?

October 20, 2020

You are in over your head in debt and want a way out. Fortunately, there are two ways – both of which are successful, but each has different requirements and outcomes.

 

What is the Debt Snowball Method?

The debt snowball method is perfect for those who thrive on ‘quick wins.’ If you need the motivation to get out of debt, this is the method for you. Here’s how it works.

  • Arrange your debts in order from smallest to largest balance. Don’t pay attention to the interest rates or minimum payment due – just the balance

  • Budget the minimum required payment for each credit card

  • Determine how much ‘extra’ money you have to pay toward your credit card debt

  • Add that amount to the minimum payment for the first card in line

  • Keep making this payment until you pay the debt in full

  • Take that same amount and add it to the next debt in line (2nd credit card)

  • Repeat until you are out of credit card debt

 

What is the Debt Avalanche Method?

The debt avalanche method doesn’t provide the same ‘quick wins’ but it saves a lot of money on interest. If you need motivation, you may want to stick with the debt snowball method. If you can handle the ‘slow and steady wins the race’ mentality, use the debt avalanche. Here’s how it works.

  • Arrange your debts in order from highest to lowest APR. Don’t pay attention to the balance or minimum payment due – just the APR

  • Budget the minimum required payment for each credit card

  • Determine how much ‘extra’ money you have to pay toward your credit card debt

  • Add that amount to the minimum payment for the first card in line (highest APR)

  • Keep making this payment until you pay the debt in full

  • Take the same amount and add it to the next debt in line (2nd credit card)

  • Repeat until you are out of credit card debt

Which Method is Right for You?

Think about your habits? Are you likely to stick to the plan if you don’t see progress quickly with the debt avalanche method? If so, use it because it saves you the largest amount of money over the life of the debt. You pay off the highest interest debt first.

If you need the motivation to keep going, choose the debt snowball method. Since it orders debts from smallest to largest, you may see a debt paid off in as little as one to two months. It’s a great way to keep yourself going.

 

Stay Consistent with your Debt Payoff Methods

No matter which method you use, the key is consistency. Get yourself out of debt and stay there. Lock up your credit cards if that was the problem. Don’t close them because that hurts your credit score, just don’t use them.

If you use one method and find that it doesn’t work, try another. Don’t give up until you get yourself out of debt.

Rahul Iyer

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