Snowball or Avalanche, What's the Best Debt Pay Down Strategy for You

by
Ember M.
Share via
Email IconLinkedin IconTwitter IconFacebook Icon
Debt, debt, debt. It's the four-letter word that nobody wants to talk about, but unfortunately it's a reality for many of us. Whether it's student loans, credit card debt, or that pesky mortgage, we all have to figure out a way to pay it off. But with so many different strategies out there, it can be tough to decide which one is best for you. Fear not, dear reader – we're here to break down some of the most popular debt paydown strategies and help you decide which one is the best fit for your financial situation.

Debt, debt, debt. It's the four-letter word that nobody wants to talk about, but unfortunately it's a reality for many of us. Whether it's student loans, credit card debt, or that pesky mortgage, we all have to figure out a way to pay it off. But with so many different strategies out there, it can be tough to decide which one is best for you. Fear not, dear reader – we're here to break down some of the most popular debt paydown strategies and help you decide which one is the best fit for your financial situation.

The "Snowball Method"

snowball avalanche debt pay down

This strategy involves paying off your smallest balances first, which can give you a quick win and boost your motivation. Once you've paid off your smallest balance, you can then move on to the next smallest balance, and so on. It's like a game of whack-a-mole – you keep knocking out those small debts until you're debt-free.

The "snowball method" is a debt paydown strategy that involves paying off your smallest balances first, while still making the minimum payments on your larger debts. This can give you a quick win and boost your motivation as you work towards paying off all of your debt.

For example, let's say you have the following debts:

  • Credit card #1: $500 balance, $25 minimum payment
  • Credit card #2: $1,000 balance, $50 minimum payment
  • Credit card #3: $2,000 balance, $100 minimum payment
  • Student loan: $10,000 balance, $200 minimum payment

Using the snowball method, you would focus on paying off credit card #1 first. You would continue to make the minimum payments on your other debts, but you would also make additional payments on credit card #1 to pay it off as quickly as possible. Once credit card #1 is paid off, you can then focus on paying off credit card #2, and so on.

By starting with your smallest balance first, you can quickly pay off a debt and feel a sense of accomplishment, which can help keep you motivated as you work on paying off your larger debts. This method can be especially effective if you need a quick win to stay motivated and focused on your debt repayment plan.

The "Avalanche Method"

snowball avalanche debt pay down

Similar to the snowball method, but this time you focus on paying off the balance with the highest interest rate first. This can save you more money in the long run, as those high interest rates can really add up over time. It's like taking out the trash – you might as well tackle the stinky stuff first, right?

The "avalanche method" is a debt paydown strategy that involves focusing on paying off the balance with the highest interest rate first, while still making the minimum payments on your other debts. This can save you more money in the long run, as the high interest rates on your debts can really add up over time.

For example, let's say you have the following debts:

  • Credit card #1: $500 balance, 20% interest rate, $25 minimum payment
  • Credit card #2: $1,000 balance, 15% interest rate, $50 minimum payment
  • Credit card #3: $2,000 balance, 10% interest rate, $100 minimum payment
  • Student loan: $10,000 balance, 5% interest rate, $200 minimum payment

Using the avalanche method, you would focus on paying off credit card #1 first, as it has the highest interest rate. You would continue to make the minimum payments on your other debts, but you would also make additional payments on credit card #1 to pay it off as quickly as possible. Once credit card #1 is paid off, you can then focus on paying off the debt with the next highest interest rate (credit card #2), and so on.

By tackling your highest interest rate debts first, you can save more money in the long run as you won't accrue as much interest on your remaining balances. This method can be especially effective if your main goal is to save money on interest and pay off your debt as efficiently as possible.

The "Minimum Payment Method"

This one involves making the minimum payment on all of your debts, while focusing on paying off the debt with the highest interest rate first. It's like taking a leisurely stroll through the park – you're making progress, but it might take a while to get where you want to go.

The "minimum payment method" is a debt paydown strategy that involves making the minimum payment on all of your debts, while focusing on paying off the debt with the highest interest rate first. This method can be a good option if you don't have a lot of extra money to put towards your debts each month and need a structured plan to help you pay them off.

For example, let's say you have the following debts:

  • Credit card #1: $5,000 balance, 20% interest rate, $100 minimum payment
  • Credit card #2: $7,000 balance, 15% interest rate, $150 minimum payment
  • Student loan: $10,000 balance, 5% interest rate, $200 minimum payment

Using the minimum payment method, you would focus on paying off credit card #1 first, as it has the highest interest rate. You would make the minimum payments on all of your debts each month, but you would also make additional payments on credit card #1 to pay it off as quickly as possible. Once credit card #1 is paid off, you can then focus on paying off the debt with the next highest interest rate (credit card #2), and so on.

By making the minimum payment on all of your debts and focusing on paying off the highest interest rate debt first, you can slowly chip away at your debts and eventually become debt-free. However, this method can take longer to pay off your debts as you are only making the minimum payment each month and not paying off the balance in full. It's important to carefully consider whether the minimum payment method is the right choice for your financial situation.

The "Debt Consolidation Method"

This involves taking out a new loan to pay off all of your existing debts, which can be a good option if you have a lot of high-interest debt and can qualify for a lower interest rate on the new loan. It's like cleaning out your closet – you might have to buy a new dresser to hold all of your clothes, but in the end you'll have a much more organized space.

The "debt consolidation method" is a debt paydown strategy that involves taking out a new loan to pay off all of your existing debts. This can be a good option if you have a lot of high-interest debt and can qualify for a lower interest rate on the new loan.

For example, let's say you have the following debts:

  • Credit card #1: $5,000 balance, 20% interest rate
  • Credit card #2: $7,000 balance, 15% interest rate
  • Student loan: $10,000 balance, 5% interest rate

Instead of trying to pay off each debt individually, you decide to take out a debt consolidation loan for $22,000 to pay off all of your existing debts. You are able to qualify for a 10% interest rate on the new loan, which is lower than the interest rates on your existing debts.

By consolidating your debts into one loan, you now have a single monthly payment to make instead of multiple payments. This can make it easier to manage your debts and stay on top of your repayment plan. However, it's important to remember that taking out a new loan to pay off your debts will extend the repayment period and you may end up paying more in interest over the long term. It's important to carefully consider the terms of the loan and whether debt consolidation is the right choice for your financial situation.

Final Thought

So which one is the best choice for you? It really depends on your individual financial situation and what works best for you. If you're someone who needs a quick win to stay motivated, the snowball method might be the way to go. If you're more focused on saving money in the long run, the avalanche method might be the better choice. And if you're someone who needs a more structured plan, the minimum payment or debt consolidation methods might be the way to go.

No matter which strategy you choose, the most important thing is to get started on paying off your debt. It won't be easy, but with a little bit of financial discipline and determination, you can say goodbye to that pesky debt for good.

Related content