These two different payoff methods have different fundamental school of thought but they both get you to the “promise land of being debt free.”
- Debt Snowball
In this method, you have to list all your debts in order from the largest to the smallest by amount regardless of the interest loan rate. Then, start paying the smaller one as quickly as possible while maintaining minimum payment on the rest. Once you’re done paying the loan with the lowest amount, add the amount you were paying to it on the second smaller loan amount so as to knock out the second loan payment faster and continue with the same process until all your debts are cleared. Once you knock out your smaller debts first, those are like small wins that build your confidence to tackle higher debts.
- Debt Avalanche
This method focuses on paying debt with the highest interest loan rate first. Therefore, you’ll maintain minimum payments on debts with lower interest rate as you focus on knocking out/clearing the loan with the highest interest loan rate.
The benefit of this method is that you get out of loan faster because you’re paying the higher interest rate first meaning you’ll end up paying less.
The payment debt strategy that is right for you really narrows down to knowing yourself and how you can handle it. i.e., which is going to motivate you? Is it the (Debt Avalanche) – knowing that you’re going to get out of debt faster even if you’re not seeing any tangible progress OR (Debt Snowball) – seeing the tangible progress even if it means you’re going to pay more interest rate in the long run?
Author: Everlyne Malimo
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