Getting an education, driving your new car off the lot, buying a home—it can sometimes feel like every big life step comes with a little thing called debt.
And while it’s often accumulated while making investments and purchases that can help you reach your personal and professional goals and build the future you want, it’s no secret that debt also has the potential to have negative consequences.
Though your initial purchase may bring with it an initial rush of excitement and adrenaline, eventually reality sets in: You will eventually have to pay off your debt over a period of time, perhaps with variable interest, often with an added mix of financial anxiety and chest pains.
But debt repayment doesn’t have to be so stressful—sometimes it can even be empowering. It all depends on how you think about it and how you plan ahead.
Many folks may have a combination of shorter-term debts, like credit cards, and longer-term debts, like student loans and a mortgage.
Just making all the different monthly payments can become a chore that takes hours off your life, not to mention a big chunk of your paycheck. And if you’re just making the minimum monthly payments, it might seem like you’ll be repaying your debts forever.
Choosing a debt payoff strategy can ease your mind—and maybe even your wallet. A successful debt payoff strategy is typically one that helps you feel empowered and in control of your finances, while keeping you motivated to get out of debt as soon as possible.
Ahead, we’ll take a look at some popular payoff methods, including the snowball, avalanche, and snowflake strategies. We will also explore the loan consolidation strategy.
Keep in mind that each option has its benefits and drawbacks; choosing the right strategy will ultimately come down to your specific financial situation and what will most effectively inspire you to get debt-free.
The Debt Snowball Method by Dave Ramsey
The first of these snow-themed repayment methods is called the snowball method. Popularized by financial self-help guru Dave Ramsey , the concept behind this strategy is that paying off your smallest debt first (regardless of the interest rate) will give you a feeling of accomplishment that will increase your motivation to pay off your next biggest debt and, eventually, tackle all of your existing debt.
Though this method may offer a valuable morale boost that can potentially help you feel more empowered in getting your finances back on track, this method probably won’t save you as much money as paying off your debts with higher interest rates first.
Even so, it’s worth noting that a 2016 study published in the Harvard Business Review found that people using this method paid off credit card debt faster than those using other methods, for the simple reason that it’s typically easier to stay motivated when you see progress in your pursuits.
How it works: Make a list or spreadsheet of your debts (list the debt with the smallest principal balance first) along with the minimum payment amount for each of them. While making the monthly minimum payments on all debts, the strategy has you start throwing as much extra money as you can afford to spare towards the smallest of your debts.
Once you have paid this portion of your debt off, this strategy suggests you take the minimum payment you were paying on that debt and reallocate it to the minimum payment of your next-smallest debt (there’s the snowball).
The idea is that, by paying off your smallest debt and increasing the amount you’re able to put towards your next smallest debt, you’ll be able to keep your momentum going and continue repeating the process until you are debt-free.
The Debt Avalanche Method
This next method is also known as the “ladder” or “debt-stacking” method. Unlike the snowball method, which is structured around behavior and motivation, the avalanche method is about streamlining your debt repayment so that you can save the most money on interest.
The avalanche strategy can sometimes require more discipline, and the initial results may sometimes seem a bit less tangible. Even so, keeping track of how much you are saving in interest can be a great motivator for many people dealing with debt.
How it works: Make a list of all your debts by order of interest rate, from the highest percentage to the lowest. While continuing to make all your minimum monthly payments on your existing debts, the avalanche method suggests that you also “attack” the highest interest rate loan with as many extra payments as you can.
In other words, send an avalanche of extra money towards the debt that’s costing you the most.
For extra motivation, you can use an extra payment loan calculator like this one to keep track of how much you’re saving in interest.
The Debt Snowflake Method
Taking the snow metaphor even further, the “snowflake” method can be used on its own or in conjunction with another method, such as the snowball or avalanche. The snowflake method involves finding extra income on top of your usual income to help pay down your debt faster.
Side gigs and extra work are often seen as ways to afford extra purchases or make a bit of extra cash to spend on the finer things in life. But instead of using this extra money on pleasure expenses, the snowflake strategy encourages individuals to find an additional income stream that can be dedicated specifically to paying off debts more quickly.
How it works: Scrape together extra micro-payments by any means possible: using credit card rewards cash, taking those cans of spare change to the bank, selling old textbooks or collectibles online, or even taking on a few side gigs. From there, the method suggests putting the extra cash from these projects toward extra debt payments.
Consolidating Debt Under a Single Loan
One final strategy for paying down debt is converting all your various debts into a single loan, commonly referred to as loan consolidation (no snow metaphor here).
This method has the potential to dramatically simplify your loan repayment process. Instead of multiple loans and multiple interest rates, you’d have one loan and one interest rate. And ideally, this new interest rate will be close to the average of all your interest rates combined—or maybe even lower.
How it works: Start by shopping around for the best loan consolidation or personal loan offer you can find. Once you find one and are accepted, your lender will grant you a personal loan that you can use to pay off your existing qualifying loans or debts in full. Then you’d pay back the personal loan, which is just a single monthly payment.
One potential downside to consolidating your loans is that your overall repayment period may get extended, meaning you could pay more in interest over time if you only make minimum payments on your personal loan.
This said, when you take out a personal loan, you can make sure to choose a loan term that doesn’t extend your repayment period and find an option that works for you, your debt, and your financial situation.
Remember, even if you decide to consolidate some of your debt with a personal loan, you can always use the snowflake method or other strategies on the remainder of your debt.
Whatever plan you end up choosing, making consistent extra payments on your personal loan whenever possible can help you get out of debt even faster (just watch out for prepayment penalties—that’s why it’s so key to always do your research before you sign on the dotted line).
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