Debt Snowball or Debt Avalanche: Which method is best for debt reduction?

Debt Snowball and Debt Avalanche are two methods for paying off debt. You may be wondering what are the differences in the two methods and which one is the best option for getting out of debt. Today’s blog post will discuss both to help you gain a better understanding and to help you make the best choice for your situation.

First, let’s discuss the Debt Snowball method which was made popular by Dave Ramsey. The Debt Snowball method has you list all debts in order from the lowest balance to the highest balance and has you work to pay off the smallest balance first. You continue to make minimum payments on all debt except the smallest one. You would focus on paying as much as possible on the smallest debt to pay it off quickly. Once you pay off the smallest balance, you take the payment you were making and add it to the payment for the next smallest balance. In essence, you are still making the same amount of payments each month but you are tackling the lowest balance debts in order to minimize the number of debts you have. I personally used this method the pay off our debt several years ago and it really worked for me. I like to see accomplishments along the way so psychologically this was the best method for me to use. The debt snowball helped build my confidence in the ability to pay off debt.

The Debt Avalanche method calls for you to pay off the debt with the highest interest rate first no matter the balance of the debt. Using this method you would make minimum payments on all debt besides the highest interest rate debt. You would pay as much as possible on the highest interest rate debt until you pay it off. Then you would take that payment and apply it to the next highest interest rate debt. Eventually you will pay off all your debt using this method as you would the Debt Snowball. I tried this method but found it did not work as well for me psychologically. For some people the debt avalanche would work best because you feel you are saving money by paying the highest rate balances down first. You will have to be disciplined to continue following this method as you would the Debt Snowball.

Both methods have been used to accomplish the same goals which are to pay off debt and become debt free. You have to judge for yourself as to which method you feel is the best fit that you can follow. Debt reduction is similar to weight loss plans; one size may not fit all but there is a plan out there that will work. Work out your plan for becoming debt free and follow it!

Keep in mind that getting out of debt once does not mean you will stay out of debt just like dieting for a while does not necessarily mean you will always stay on the diet and make good choices. It is a lifestyle change to stay out of debt. Choose to make the changes necessary to get out of debt and stay out of debt.  What type of financial legacy do you want to leave behind? It’s your choice.

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Debt Free Means Financial Freedom image by Stuart Miles

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