Household Survival

Debt Snowball vs Debt Avalanche Methods

Check out this Debt Snowball!!

I’m sure you’ve seen that in a million places now. Every time you search for answers to debt you inevitably come back to this phrase. Really, it’s for a good reason, I promise.

But why do we even have debt?

My own debt is a complicated mess of no discipline, medical and car issues, then marriage. My life has had twists and turns and plenty of curveballs that have landed me in my mess. But I am climbing out of it. Bit by bit my debt is getting paid off and is staying that way due to a good budget and my pay of plan. So again, why is the debt snowball so wildly popular?

Why does everyone seem to be on the Debt Snowball train?

Well honestly it’s a really good way to quickly pay off debts especially credit card debts and other small balance items you may have. (Small being relative. For now, I’m considering $5k and under small)

So briefly, a debt snowball is a method of paying down your debt that takes equal parts discipline and calculation. Yes… I said the dirty word. Calculation. Don’t worry, we’ll go over that in a few minutes and hopefully you will not find it terribly painful.

A debt snowball is paying the minimum payment on each of your debts except for one. Usually, this one is either your smallest balance debt or it is your highest interest debt. For this debt, you would put any extra dollars that you can into a payment. So say you stopped drinking your morning coffee out and made it at home. That’s roughly an extra $4 a day times 5 days a week giving you = $20 a week to set aside for this payment. In one month, that’s a $100 payment!

(Note: I used to be a to-go coffee latte junkie. It was…well… painful. Painful to quit and painful to admit I had an issue.)

Alright, so when you make that extra $100 payment you are going to quickly eliminate that small balance. From there, you will take the minimum payment you were making on that debt plus that extra $100 you found and put it towards the next debt. Like a snowball rolling down hill, it just gets bigger and adds momentum to your pay off plan.

From a witch’s view: This gathering of momentum is great for building energy and pushing towards your goals.

 

Debt snowball method

But How Do I Know Which Debt to Pay First?

(Disclaimer first! I am an accountant but I am not YOUR accountant. None of this is specific advice for your situation and I am not responsible for any decisions made nor do I guarantee any results.)

However, I think you’ll find you’ll be well informed after this next paragraph.

But first! Homework.
Gather together a list of the following information:
-Name of Debt (credit car name, account, etc)
-Amount left to Pay
-Interest Rate
-Current minimum payment

So I mentioned early on there are two ways of choosing which debt goes first you can do small balance pay off or you can do high interest rate pay off. Lets cover small debt pay-off first.

SMALL DEBT PAY OFF(Debt Snowball)

Take your list of debts and sort them by Amount Left to Pay.

Begin by making the minimum payment and any extra that you can put to this. Even if it’s only $5 it is better than $0 as you pay one off roll the payment into the next then the next.

One of the benefits to the Small Debt Pay-Off method is you see success very quickly. Your snowball usually gets rolling faster earlier on. This kind of success is incredibly motivating especially when you’ve been in a debt slump for awhile.

HIGH INTEREST RATE PAY OFF(Debt Avalanche)

One of the reasons for choosing high interest rate pay off is getting rid of debt that takes forever to pay off. Each month, you are charge your interest rate and that gets added to the debt. It can make a mountain out of a mole hill really quickly.

From a witch’s view: These suden burst of energy can be very driving. If you find that you need bursts of motivation, this may be the method for you!

To do the High Interest Rate Pay-Off:

Take your list of debts and sort them by interest rate, highest to lowest.
This will give you your order of payoff. Like before, pay the minimum plu whatever extra you can towards this debt. As this gets paid off roll the payment forward to the next.

One of the benefits of taking this route is getting rid of high interest debt will help you not pay as much in the long run. Higher interest rates will drive your debt everytime.. Depending on the amount to pay off, you may not see success as quickly. However, this is a good way to not spend as much money on your debt.

Again, you can see how each method builds their own momentum. Whichever method you choose, having the discipline to stick with it and see it through is critical. Debt..is hard. In our society, which is incredibly debt driven, it can be difficult to manage. Especially when the unexpected comes up again and again and again. Between kids, medical issues, and car break downs, having debt becomes necessary sometimes. But you can come out the other side and you can have that debt-free life.

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