Snowball vs Avalanche: Which Debt Strategy is right for you?
Managing debt can be challenging & overwhelming. It's can be hard enough to even think about & acknowledge the debt, let alone think about how to begin paying it off.
Two popular strategies to tackle debt are the Snowball and Avalanche methods. Each has its own approach and benefits. Understanding these methods can help you choose the right path for your financial situation.
Snowball Debt Strategy
The Snowball method focuses on paying off your smallest debts first. You make minimum payments on all your debts and then add as much extra as you can afford to your smallest debt. Once paid off, you move to the next smallest.
This method can provide quick wins and is psychologically motivating. Paying off a debt can give you a sense of accomplishment and encourage you to continue.
The hardest part of debt repayment is getting started and sticking to a strategy, so if the smallest debt gets the ball rolling, let's do it!
Avalanche Debt Strategy
The Avalanche method targets debts with the highest interest rates first. You make minimum payments on all debts except the one with the highest interest rate. For this debt, you pay as much extra as you can afford. Once you pay off the highest interest debt, you move to the next highest interest debt.
This method can save you money on interest over time. It focuses on reducing the amount of interest you pay, which can help you get out of debt faster.
Steps to Implement the Avalanche Method
- List all your debts from highest to lowest interest rate.
- Make minimum payments on all debts except the highest interest debt.
- Pay as much extra as possible on the highest interest debt- often times credit card debt
- Once the highest interest debt is paid off, move to the next highest.
- Repeat until all debts are paid off.
Choosing the Right Strategy
Choosing between the Snowball and Avalanche methods depends on your personal situation. If you need quick wins to stay motivated, the Snowball method might be right for you. If you want to save money on interest, the Avalanche method could be a better choice.
Both methods require discipline and commitment. The key is to choose a strategy that you can stick with. Consistency is crucial to becoming debt-free.
It may also help to book a session with a financial coach. They can provide personalized guidance based on your specific circumstances and check-in to keep you accountable! Remember, the goal is to reduce your debt and improve your financial health.