Avalanche or snowball method? Which is the fastest way to pay off debt and what’s the difference between the two? It all depends on whether time saved or maximum money saved motivates YOU as the debtor.
Do you know how long it will take you to be debt free? Do you have a plan?
Using the snowball approach, you can pay off a small debt and then apply that payment amount toward your next smallest debt. You would add the minimum payment amount from the paid off debt to the next minimum payment amount on the next smallest debt you owe. This can feel very rewarding eliminating debts. For example, let’s say you have three debts: one is $500 with a minimum payment of $25 per month, the next is $750 with a $30 per month minimum payment and the last debt is $1,000 with a $35 per month payment. You would pay off the $500 debt and then add the $25 payment to the $30 payment and pay $55 per month on your $750 debt. You would continue this approach with all debts paying them off in order of the smallest debt first.
With the avalanche approach, you may in the end, pay less in interest and this can translate to some nice savings. You identify your highest interest rate payment and tackle that debt first with any excess monthly cash you can consistently add to the minimum payment while making only the minimum payment on your other debts. Once paid, you add that minimum payment (plus any excess) to the minimum payment of the debt with the next highest interest rate. You are creating an avalanche of payments on your high interest rate debts.
With either approach, you should consider your personal situation, timing, ability to service the debt, and any refinance options that may be available to you to reduce the amount of interest being paid. Knowing your amount of debt and the rate(s) you are paying is the first step.
As an independent CERTIFIED FINANCIAL PLANNER™, I can help you make financial decisions and budget for your debt strategy. I can also show you which method will help you pay off your debt the fastest, or save the most money. Contact me and let’s get started. #talktometuesday #getstarted #HowIcanHelpYou #GetHelp #Hireaplanner #debt #debtfree #snowball #avalanche