If you’re struggling with debt, you’re not alone. According to a recent survey, the average American has over $90,000 in debt1. Fortunately, there are several strategies you can use to pay off your debt, including the debt snowball and debt avalanche methods.
What is the Debt Snowball Method?
The debt snowball method involves paying off your debts in order from smallest to largest balance, regardless of interest rate. You start by making minimum payments on all of your debts except the smallest one. Then, you put as much money as possible toward paying off the smallest debt. Once that debt is paid off, you move on to the next smallest debt, and so on, until you’ve paid off all of your debts.
The idea behind the debt snowball method is that paying off small debts first gives you a sense of accomplishment and momentum that can help you stay motivated to pay off your larger debts. This method can be especially helpful if you have several small debts with high interest rates.
What is the Debt Avalanche Method?
The debt avalanche method involves paying off your debts in order from highest to lowest interest rate, regardless of balance. You start by making minimum payments on all of your debts except the one with the highest interest rate. Then, you put as much money as possible toward paying off the debt with the highest interest rate. Once that debt is paid off, you move on to the next highest interest rate debt, and so on, until you’ve paid off all of your debts.
The idea behind the debt avalanche method is that paying off high-interest debts first can save you money in the long run by reducing the amount of interest you pay over time. This method can be especially helpful if you have several high-interest debts with large balances.
Which Method is Right for You?
Both the debt snowball and debt avalanche methods have their pros and cons. The debt snowball method can be helpful if you need a quick win to stay motivated, while the debt avalanche method can save you money in the long run. Ultimately, the method that’s right for you will depend on your personal financial situation.
If you have several small debts with high interest rates, the debt snowball method may be the best choice for you. On the other hand, if you have several high-interest debts with large balances, the debt avalanche method may be the way to go.
Regardless of which method you choose, the most important thing is to make a plan and stick to it. Paying off debt can be a long and difficult process, but with the right strategy and mindset, you can become debt-free.