When you have a number of different debts, attempting to pay them all off on time or early can seem overwhelming. However, if you stay organized, motivated, and focused, you can work your way to freedom from debt. The “snowball” and “avalanche” methods of debt repayment are well-known and well-tested strategies you can use to keep yourself on track.

Your debt budget

The first step to ridding yourself of debt is to make sure you aren’t living beyond your means and adding to the problem. Before you can pay off any balances, you need to make sure your monthly budget covers your bills, basic living expenses, and minimum debt payments. The amount of your income left over every month is your “debt budget,” or the additional money beyond minimum payments you can put toward paying off your debt balance.

Regardless of which strategy you choose, cutting any extra expenses out of your lifestyle will allow you to get out of debt faster. Don’t worry, you don’t have to give up luxuries forever, just until your debt is paid off. The goal is to maximize your debt budget by minimizing the number of bills you have to pay. Remember, the faster you pay down debt, the less you pay in interest charges over time—which means more money for those luxuries!

The snowball strategy

The snowball strategy focuses on psychology and motivation to help you pay off your debts and loans. You pay your monthly minimums across all credit cards and any loans (student loans, car loan, etc.), then, you apply your debt budget to the smallest debt or loan amount. Since you’re starting with the smallest debt, it won’t be long before you have your first taste of victory by eliminating an account balance! This success will give you confidence to stay motivated about tackling the next debt (which should be your new smallest debt or loan). Each time you pay off a loan, you get to apply that debt budget to the next one in line, slowly growing the amount — kind of like a snowball that starts small and slowly grows into a snow-boulder.

If you have many different types of debt—store credit cards, smaller loans, or money owed to family or friends—this strategy can work better.

The avalanche strategy

While the snowball strategy can be successful in keeping you motivated, it may not make the most financial sense for you. Accounts with high interest rates will grow and compound faster while you’re focused on paying off smaller debts. If this is true for you, the snowball method could cost you thousands of dollars more and require much more time to pay off than if you had employed the avalanche strategy.

In the avalanche strategy, you arrange your debts from the highest interest rate to the lowest, regardless of balance, and concentrate all your debt budget towards paying down the highest interest debt first. However, if your debt with the highest rate also has the largest balance, it could be a long time until your first clear “success.” This might demotivate you.

Which strategy is best for you?

If you’re worried that your lifestyle could creep up on you if you don’t experience some early emotional rewards, the snowball method is probably the way to go. However, if your largest debts are on high-rate credit cards, you should probably prepare for a disciplined avalanche approach.

For some people, the two methods will be essentially the same: the highest rate debt will also be the smallest. In this case, you’re lucky enough to get the best of both worlds. Your debt will be gone in no time!

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