Two major methods dominate the debt repayment sphere: the debt snowball and the debt avalanche.
One method prioritizes paying off debts with the highest interest rate first minimizing interest payments over time.
Thats thedebt avalanche method.
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What Is the Debt Snowball Method?
This debt snowball strategy is perfect for people who are motivated by quick wins.
However, theres a downside: You end up paying more interest in the long term.
Many people disagree with the concept of paying more interest for quicker wins.
Why would you pay off smaller balances and let those interest-mongers sit?
Because youre not a robot youre a human being.
Its important to pick a debt management strategy that works for you and keeps you engaged.
How the Debt Snowball Method Works
Its a simple process.
Heres everything it’s crucial that you know.
List All Your Debts From Smallest to Largest
Start by listing all your outstanding debts.
Disregard the interest rates.
Then, order them from the smallest balance to the largest.
This can be done on paper, a spreadsheet, an app or in a handy-dandydebt snowball calculator.
Include all the debt accounts you want to pay off quickly.
Look for ways toearn more moneyon the side as well.
Try every month to lower your spending and increase your income.
Youll need that extra money for the next step.
That means youll be paying the minimum plus your designated extra on that debt.
Lets say $50 plus $150 extra for a total payment of $200.
Now, youre making a $300 monthly payment instead of $100.
Continue paying that amount until the second debt is paid off.
Thats how you snowball your way into putting $425 toward that debt each month.
Its a simple concept but requires patience and consistency.
Once this debt management strategy is in place, youll see how negligible that extra interest can be.
As you celebrate each new win and milestone, your commitment grows.
Its an empowering process that can change how you think about money.
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Because these processes take time, you will continue to rack up more interest while paying down debt.
Both are effective methods of approaching your debt management plan, just pick which one fits you best.
It takes patience, consistency and careful money management.
Even with a process like the debt snowball method, theres plenty of room for challenges and slip-ups.
Dont let them put you off your goals.
Theres a reason this method has been so successful for so many people.
Its worth a little extra prep and effort to find your financial freedom at the end of the path.
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