Paying Off Debt: The Snowball Vs. Avalanche Methods

I got silly with Google searches again as I tend to do a lot recently, I came across a phrase on one search "How to pay debts with no money?" and I got curious, that would be like an answer to prayers. No, I'm not the one in debts but I know a lot of people who are and are even planning to go into one in next hour or day.

Is it even possible to pay debts with no money? I guess yes, only if the lender agrees you pay back in kind (a property of yours) or something they need your help or skill with, right? That's what I think though. So for money debt, sorry, you'll have to pay back money if the lender wants it that way.

The search got me wondering if there are any easier way to pay off debts than I already know and I came across two interesting words that has proven to help people sort their debts out much easily depending on which they decide to use... The Snowball And Avalanche Methods.

I'm writing this for a revisit whenever I need to advice myself in case I go into a debt or a debtor I know, including my parents because they do go into one at some point in time. Nothing is easy, same as going out of a debt especially the huge ones or ones with high interest. So it's actually interesting to learn that there are methods to try out for better chances of being freed from debt shackles.

First is the Snowball Method.

In this method, you focus on smallest debt to pay in full first, then pay off your next smallest debt. Imagine a snowball rolling down a hill gathering speed and size as it goes... That is what it does to your debt story, you keep gaining momentum as a debtor because you feel relieved from the smallest to the biggest debts you owe.

A step by step snowball method to pay your debt will be... Listing or writing out all your debts from smallest to highest balance. You want to know what you are faced with to know which to start with (as your smallest debt). Next, pay off the smallest balance while making minimum payments on the other balances. You're not neglecting any of your debt but embracing small savings.

And lastly, add the amount of the smallest debt you paid off to the next debt you owe. You are relieved of one debt so you increase the speed on the next one, that is why it's called the Snowball Method.

Next is the Avalanche Method.

I'll say this method is for the big amounts debtors, the ones you borrow with large interests. This is because the Avalanche method prioritizes saving money on interest rates. The rule is to make minimum payments on all your debt but using any extra funds to pay off the debt with the highest interest rate.

It's almost same method process with snowball method but this time, you're making a list of the highest to smallest interest rate. Make minimum payments whether weekly or monthly to all the debts. And then use any extra money you may have to pay off the debt with the highest interest rate. You repeat this from the highest to the next highest interest rate.

Both methods work differently for different people as some would prefer the motivation that comes with using the snowball method since it actually gets rid of some debts for them. Others will prefer Avalanche method because it is getting rid of the chances to pay high interest rate.

To you, which do you think would be efficient for you if you were to use one method to pay off debts? I'd love to know what you think about both methods in the comment section.

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Posted Using InLeo Alpha