When it comes to paying off debt, there are two popular strategies that are typically encouraged:
The Debt Avalanche method or the Debt Snowball method
Both of these winter-themed strategies are effective for getting you to debt-free, but each has pros and cons.
The Debt Avalanche method
The Debt Avalanche method consists of paying off your debt with the highest interest rate first. Once it’s paid off in full, you then focus on the next highest interest rate debt, and so on, until you pay off your lowest interest rate debt last. Because you get rid of your highest interest debts first, the Debt Avalanche method saves you the most money overall. For this reason, it is mathematically the best solution to paying off your debts. Using the Debt Avalanche method, you will likely focus on paying off things like credit cards and lines of credit before you tackle traditional low-interest debts like student loans.
The Debt Snowball method
The Debt Snowball method has you paying off your smallest debt balance first, regardless of the interest rate. Once the smallest debt is paid off, you then roll the payment into the next largest debt and so on, until you pay off your largest debt balance last. By tackling your smallest debts first, you rapidly feel a sense of accomplishment whenever you pay off a balance. This gives you momentum to tackle the rest of your debt. For this reason, it is often psychologically or emotionally the best solution to pay off your debts, even if it does end up costing you more money in the long run.
What about the emotional weight of debt?
What many people tend to neglect about debt is the weight behind the balances and interest rates. Some debt simply feels emotionally or psychologically painful to carry around. This could be money we owe a friend or family member, or debt from silly mistakes like unpaid parking tickets. Whether these are small balances or 0% loans doesn’t make them any easier to ignore. Sometimes it makes sense to get rid of your emotionally heavy debts even if they are not your highest balances or highest interest rate loans.
How to Pay Off Your Debt
When it comes to deciding between the Debt Avalanche and the Debt Snowball (or any other debt repayment strategy) the first thing you have to do is make a list of all your debts, their interest rates, balances, and minimum payments.
From here, you want to look at:
- Your largest balance
- Your highest interest rate
- Your most emotionally or psychologically “painful” debt
- Which debts you can pay off early (since some loans may not let you pay off the balance ahead of schedule, even if you want to!)
And then you want to prioritize your debts for repayment.
You can take a blended approach!
There’s no rule that you have to pick one strategy and neglect the rest. Feel free to pay off your most emotionally heavy debt first, then your smallest balance, and then devote your efforts to the highest interest rate loan.
There really is no wrong way to pay off debt, all that matters is that it gets paid off.
I personally advocate for the Debt Avalanche method, because it saves you the most money overall by lowering the carrying costs of your debt. But I also understand the emotional weight of debt, and sometimes the best thing you can do to ensure you stay committed to your debt payoff strategy is to get rid of whatever debt is “bugging” you the most to carry around.
Let’s say you opt for the Debt Avalanche method, but first you want to get rid of the money you owe mom, because you feel guilty every time you go home for Sunday dinner. Your debts listed by priority will look like this:
You’ll pay off mom first, then tackle your most expensive credit card, then the rest of your credit card debt, and so on until you’re finally debt free after you pay off your smallest student loan. As long as you’re not ringing up any more debt, you might get to debt free even faster than you expect — because you’re making the minimum payments on ALL your balances, they are decreasing even as you’re focusing on one in particular!