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Debt Payment Methods: Snowball vs. Avalanche

November 7, 2019 in General   3 min read

Paying off multiple debts can be difficult to do, even after filing bankruptcy. Things can get quickly overwhelming if you have multiple loans, credit cards and other liabilities on your plate. Some of the best payments methods to utilize when tackling debt are the Debt Snowball and Debt Avalanche methods. Here’s a quick guide to help you choose the right payment method.

Getting Started

It is very important to get organized and review exactly what your finances look like. Setting up a budget and cutting out unnecessary expenses come first on the list of steps to get back on track. Here’s a few steps you can take to help you get started. 

1. Calculate your Monthly Net Income. This is the amount you bring home after taxes and deductions. 

2. Calculate your Monthly Expenses. The best way to keep track of these things is to set up a budget (manually or electronically) and list the amounts you pay for your monthly expenses. 

3. Calculate your Monthly Net Disposable Income. This is the amount you have left over after your monthly expenses: (Monthly Net Income - Monthly Expenses).

4. Calculate your debts. Find out the amounts you owe and the interest rates and fees of each debt you owe for.

This gives you an idea of what you have left each month to pay to your creditors. If your net disposable income is negative, you must first work on increasing your income or decreasing your expenses. 

Debt Snowball vs. Debt Avalanche

Now that you have a better understanding of your finances, you can start planning on what method to use to help you pay down your debts:

Debt Snowball 

This method entails paying off lower balance, lower interest rate debts first. Most people use this method to build financial confidence, especially for those that are overwhelmed with multiple debts. For some, paying off a debt can be stimulating and can be motivating to take action and pay down other debts down the road. 

Debt Avalanche

This method is for those that want to be debt free as fast as possible by paying the higher interest rate, higher balance debts first. Paying interest is essentially paying to borrow money. The more time you take to repay your debt, the more you’ll be paying in interest over time. By paying off the high interest rate, high balance debts first, you will be saving more money over the life of your loan. 

Which Method Should You Choose

There is no right or wrong way to pay off debts. Choosing a debt repayment method simply comes down to personal preference. If you are the type of person who needs motivation, the Debt Snowball technique is a good way to help you get the ball rolling. For those that are able to pay and want to save money and time, the Debt Avalanche method can help tackle large debts faster. Some important factors to consider when choosing a method are the types of debts and the interest rates on those debts. If you are dealing with higher interest rates, you may want to consider paying those down first, as higher interest rates will increase the total amount you will pay over time. For some, it may be beneficial to use a combination of both methods.


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