There seem to be two main beliefs when it comes to tackling debt. The “snowball” method, which I talked about here, and the “avalanche” method. The snowball method seems to be more popular and is the method preferred by financial guru Dave Ramsey. It focuses on paying off debts as quickly as possible based on the amount owed and paying off the debt with the smallest balance first. The avalanche method is similar but focuses completely on the interest rate of the debt rather than the balance. Here’s how the avalanche process works:
List all of your debts with the current interest rate next to them.
Put your debts in order based on the interest rate so that you are paying off the debt with the highest interest rate first.
Pay everything you possibly can at the high interest debt while only paying the minimum amount due on all of your other debts.
When the high interest debt is paid off, put the money you were throwing at it toward the next-highest interest rate debt until it is paid off. Repeat.
This method can be really effective at tackling debt and is easy to plan out. If you want to get rid of debt and are motivated, you could choose either the snowball or the avalanche method and be successful. It just depends on which is more important to you - the balance owed or the interest rate. Most financial experts argue that the avalanche method makes more sense but takes longer to see real results. The snowball method is faster but means you might be paying more money in interest. So really it’s up to you and what you’re comfortable with. Either way, I hope you’ll consider either method if debt is something that is holding you back from reaching your financial goals.
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