Getting out of debt can be one of the most overwhelming and frustrating financial goals. It usually takes quite a bit of time and requires dedication and consistency with your budget. Paying off debt allows you to spend your income on your future instead of your past. Stop for just a minute and think about how much extra money you would have without loan payments. It sounds like a nice amount to keep in your pocket, doesn’t it!? There are two debt payoff methods that are the most popular. Let’s compare the debt snowball vs. avalanche method!

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How to Get Started

First, let’s go over what you need to do before jumping in to pay off your debt.

You need to start by creating a budget. Even if you have the best intentions in the world, you won’t get anywhere without a budget. A budget is just a written plan telling your money where to go. If you don’t tell every penny where to go, money will fall through the cracks.

Read: How to Write Your First Budget

Once you have your budget and have figured out how much you can pay to debt each period, you need to decide if you want to use the debt snowball or debt avalanche method.

What is the Debt Snowball Method?

The debt snowball method is a payoff plan based on the balance of each loan. Create a list of all your loans from smallest to largest, and pay them off in that order. This method will give you quick wins, which will motivate you and help keep your momentum going.

The easiest way to get started on this method is to grab a pen and paper and write down every single debt you have and the current balance. And I mean every debt. Your car, your iPhone payment plan, your student loans, your store credit card — these are all debt.

How does the Snowball Method Work?

Arrange all your debts so you have a list that goes from the smallest loan balance to the largest. To use the snowball method, make minimum payments on all of your loans except the smallest balance. All extra income you have each period to pay on your loans will go to this smallest balance debt.

Once this smallest debt balance is paid off, take that entire amount you paid on the smallest loan and add it to the minimum payment for the next smallest debt on the list.

You are basically rolling your extra money available to make payments onto your debt into the next debt each time you pay a loan off. Each time you pay a loan off, you’ll have MORE money available to make extra payments on your next loan.

Get why it’s called the debt snowball method? As you pay loans off, your momentum will increase. This method is popular because it provides quick wins early on as you work towards getting out of debt.

What is the Debt Avalanche Method?

The debt avalanche method is based on interest rates instead of loan balances. With the avalanche method, you pay all your extra money for the period on the loan with the highest interest rate.

Instead of writing your loan balances from lowest to highest, write out a list of your loans from the largest interest rate to the smallest interest rate. By paying the highest interest debts off first, more money will be saved in interest.

How does the Debt Avalanche Method Work?

Once you have your list of debts from highest interest rate to lowest interest rate, the avalanche method works just like the snowball method. Make your minimum payments on all of your debts, and make your extra payment on the loan with the highest interest rate.

Once the loan with the largest interest rate is paid off, move the entire amount of minimum plus interest that was paid on that loan and start paying it on the next loan on your list.

What if you have more than one loan with the same interest rate? In this situation, I would combine the snowball and avalanche methods. Pay the smallest loan with this interest rate off first, then move to the higher balances.

As you continue to make minimum payments on all of your loans, the principal balance will go down. With the avalanche method, by the time you get to the loans with the lower interest rates the minimum payments will likely have decreased. There’s an avalanche because not only are you paying more in extra payments with each paid off loan, but you are also lowering minimum payments.

Should I use the debt snowball or avalanche method?

The debt payoff method that works the best for you will depend on your personal situation. I am using a combination of the two methods. I’m paying off my Discover card first because it has a 13% interest rate (and gives me the most stress!) Then I will be using the debt snowball method for the rest of my loans.

The debt snowball method will work best for you if you need the motivation of quick wins. Starting with the smallest debt amounts will enable you to pay off several loans within a relatively small period of time.

This method is also a good way to break down your debts into smaller, manageable amounts to tackle one at a time. This can help keep you from getting overwhelmed right out of the gate. We are using the snowball method to track my boyfriend’s student loans and it’s actually pretty exciting to knock out a loan and cross it off the list!

The avalanche method is for you if you want to save money over the course of your debt payoff. You will potentially pay off your a debt a little sooner than the snowball method as well since you will actually end up owing less. By paying the higher interest accruing balances early, less interest will add up on the rest of your loans.

Even though you will save money with the avalanche method, that won’t be much help if you don’t stick to your payoff plan. Keep in mind you might end up facing one of your largest loans first if it has the highest interest rate.

Both of these methods are great plans for getting out of debt. There’s no right answer on which method you should choose. Personal finance is personal. Choose whichever method will enable you to crush your debt and move on to your next financial goal!

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Getting out of Debt: Snowball vs Avalanche Methods