Destroy your debt! Sounds wonderful, doesn’t it? Here are two great methods to help you get debt-free. So let’s get going and get rid of your debt ASAP.
The debt snowball method uses behavior modification to help you destroy your debt quickly. It works like this:
- List all your debts, smallest to largest.
- Make minimum payments on all debts except for the smallest.
- Pay as much as possible on the smallest debt until it is paid in full.
- Start with the next smallest debt and repeat.
It works because of the sense of accomplishment people get from fulfilling their goals quickly. This accomplishment encourages people to stick with the plan until the debt is paid.
In contrast, the debt avalanche method starts by paying off the debt with the highest interest rate first and then moving to the next highest interest rate. This has the advantage of reducing the overall amount of interest you will pay before you are out of debt, but doesn’t offer the early gratification that is available using the snow ball method.
Nerd Wallet comparers and contrasts the two methods in this blog: https://www.nerdwallet.com/blog/finance/what-is-a-debt-avalanche/ (Links to an external site.)Links to an external site.
Of course, debt consolidation is also an option, but be careful! Consolidating your debt is beneficial only if you can pay a lower interest rate overall (or you desparately need a lower payment) and if you don’t build up additional debt. If you continue the spending habits that got you in debt trouble, you will dig yourself into a deeper hole using this method. You want to destroy your debt, not grow it!