2 Great Strategies for Paying Off Debt
Posted on December 12, 2022 at 8:51 AM by Noa Finken
Whether the bills are piling up or you have several loans to pay back, being in debt can feel overwhelming. Coming up with a repayment plan that you can stick to could help reduce your stress. If it feels like you're drowning in debt, take a look at these strategies and consider implementing one of them.
1. Debt Snowball Method
With the debt snowball method, you pay off debt in a specific order, starting with the smallest and working your way up to the largest. When the smallest debt is completely paid off, you pack the minimum payment that you were making on that debt onto the next smallest, building momentum as you go.
Why it works: Since you're tackling the smallest amounts first and freeing up more money for other debts, you'll make quicker gains, and seeing progress serves as great motivation to continue paying off your debts.
2. Debt Avalanche Method
Like the previous method, the debt avalanche approach attacks debt in a distinct order. However, in this case, you would start with the highest interest rate and end with the lowest.
Step 1: List all debts by interest rate from highest to lowest
Step 2: Pay at least the minimum amount owed on all debts
Step 3: Put as much extra money as you can towards the one with the highest rate
Step 4: Once that has been repaid, move onto the next highest rate
Step 5: Repeat until all debt is paid off
Why it works: Using this strategy will reduce the amount of interest you're paying, as well as free up more funds. If saving money in interest is a priority for you, then this is a great option.
Once you've determined which debt to focus on first, it's just a matter of coming up with some extra cash to throw at it. Try finding things that you can cut from your budget and using coupons whenever possible. You'll end up saving money that you can then put towards your debt.
Which method seems the most practical? Let us know what you think!