Discover Which Debt Reduction Strategy Wins Between The Snowball and Avalanche Methods
Debt, often seen as a dirty word, is something most of us encounter eventually. Even years free from debt, the mere thought still sends chills down my spine.
So, how can you claw yourself out of that hole? Let’s jump in with both feet and a lot of heart.
Debt Snowball vs. Debt Avalanche
The debt snowball method involves listing your debts from smallest to largest regardless of the interest rate and focusing all your extra payments on the smallest debt first.
The avalanche method, on the other hand, targets debts with the highest interest rates first.
In both methods, once you finish paying off one debt, you shift all your focus to the next debt on the list.
Both strategies are more effective than trying to pay a little on everything each month and gaining no traction.
Yet, one solution may prove more beneficial.
In both these methods, there are a few exceptions.
Focus on payday loans first, as they quickly eat up your capital.
Address any tax debt immediately. The tax department is often willing to work with you, so try to negotiate with them and don’t let those debts linger.
Debt Snowball
This is the method I found success with, having tried both. Dave Ramsey’s insight resonated with me:
“Winning with money is 80 percent behaviour and 20 percent head knowledge. What to do isn’t the problem; doing it is.”
The snowball method builds momentum.
It’s similar to how motivation increases when your articles here start earning money because people enjoy reading your work.
The same principle applies to paying down debt.
Clearing that first debt, which shouldn’t take long, makes you feel hopeful.
It took me a few years to become debt-free, and it wasn’t easy.
Missing out on dinners with friends and outings with family was tough, but the rewards of perseverance are immense. The debt snowball method fuels motivation when you feel hopeless, encouraging small, manageable steps.
If I Had to Start Over
Firstly, I would avoid going into debt altogether.
However, that’s not always realistic since the consequences of debt often aren’t considered until it’s too late.
I would choose the debt snowball method right from the start and minimize my lifestyle until I was debt-free and had an emergency fund.
Financial Fridays: Safeguarding Your Future with an Emergency Fund
I managed to significantly cut back the first time, though I still indulged occasionally, just less than before.
Finding a balance that works for you and your situation is key.
I believe there’s no one-size-fits-all solution to debt. Everyone’s approach and ability to cut expenses vary.
If you find yourself in debt, the snowball method is ideal for maintaining momentum and safeguarding your mental health.
Thank you for reading :)