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Debt Snowball vs Debt Avalanche

by | Mar 14, 2023 | Personal Finance

If you are struggling with debt, you are not on your own. With interest rates rising and the burden of monthly payments, it’s critical to devise a debt-reduction strategy. The debt snowball and debt avalanche methods are two popular debt-reduction strategies. But which one is right for you?

 

The Debt Snowball

Paying off your smallest debt first, regardless of interest rate, is the debt snowball method. Once the smallest balance is paid off, you move on to the next smallest balance, and so on until all of your debts are paid off.

The debt snowball method’s primary advantage is psychological. Paying off your smallest debt first allows you to see progress and feel a sense of accomplishment early on. As a result, it can be motivating and assist you in sticking to your debt repayment plan. However, the debt snowball method may not be the most cost-effective strategy. You may end up paying more in interest overall, especially if your largest debt has a high interest rate.

 

The Debt Avalanche

The debt avalanche method requires you to pay off your debt with the highest interest rate first, regardless of the balance. When you have paid off the highest interest debt, you move on to the next highest interest debt, and so on until all of your debts have been paid off.

The primary benefit of the debt avalanche method is monetary. You will save money on interest charges over time if you pay off your high-interest debt first. You’ll also be able to pay off your debts more quickly because you’ll be making larger payments on the debt with the highest interest rate.

The debt avalanche method, on the other hand, may not provide the same sense of progress and motivation as the debt snowball method. It can be difficult to stay motivated if your highest interest debt is also present is also happens to be your largest balance.

 

Which Method is Best for You?

Ultimately, the choice between the debt snowball and debt avalanche methods comes down to your personal preferences and financial goals. The debt snowball method may be best for you if you are motivated by quick wins and want to see progress right away. The debt avalanche method, on the other hand, may be a better fit if you want to pay the least amount of interest overall and are willing to make larger payments upfront.

Whatever method you choose, it’s critical to create a plan, stick to it, and be consistent with your debt repayment efforts. Consider automating your payments or setting up reminders to ensure you stay on track. It may take some time, but with dedication and persistence, you can achieve financial freedom and become debt-free.

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