Two Most Popular Debt Payoff Methods

Noone likes debt. While all of us want to get rid of our debt as quickly as possible, most of us don’t know how to. As with most things, it’s best to have a plan. If you’re having a hard time coming up with a debt payoff plan of your own, consider trying one of the two most popular methods around right now.

Debt Snowball Method

The Debt Snowball was created by Dave Ramsey and is the single most popular payoff method at the moment. Here’s how it works:

1. List your debts from smallest to largest dollar amount.
2. Make minimum payments on all but the smallest debt.
3. Pay as much as you possibly can on the smallest debt until it’s paid off.
4. Combine the amount you used for the smallest debt plus the minimum and pay off the next smallest debt.
5. Combine the amount you used for the second smallest debt plus the minimum payment to pay off the next smallest debt.
6. Continue until all of your debt is paid off.

Debt Avalanche Method

The Debt Avalanche is the same as the Debt Snowball except for one detail. This is how to use it:

1. List debts lowest to highest interest amounts.
2. Make minimum payments on all but the lowest interest debt.
3. Pay as much as you possibly can on the lowest interest debt until it’s paid off.
4. Combine the amount you used for the lowest interest debt plus the minimum and pay off the next lowest interest debt.
5. Combine the amount you used for the second lowest interest debt plus the minimum payment to pay off the next lowest interest debt.
6. Continue until all of your debt is paid off .

While these two methods only have one difference, it can be an important one. The Debt Snowball Method will allow you to see results much sooner than the Debt Avalanche. This is because more debts will be eliminated in a shorter period of time. However, the Debt Snowball will also cause you to pay more interest on your debts. 

The Debt Avalanche will feel like a slower process, but  you are also avoiding having to pay more in interest. Choosing between the two is a matter of personal preference. For some the psychological benefits of seeing clear results more quickly is worth paying more in interest. For others, avoiding paying more than they have to is more important.

By: Alecia Stanton