You’re tired of sending your hard-earned money to someone else month in and month out. I get it. I’ve been there. You’re totally not alone! I know that it can be very frustrating to spend your month working just to send a chunk of your paycheck to student loans, car loans, or credit card payments! Shouldn’t you be able to keep the money that you work hard to make?!
That’s why I know you want to work towards becoming debt free. Can we just take a moment to dream a little bit? I mean, imagine if you could keep all the money that you make each month! That’s right! Imagine if you had ZERO payments! You could save part of it and then use the rest to travel (or do whatever makes you happy).
Taking a few years to live on less than you make and work towards becoming debt free will be worth it in the long run. I promise!
So you’ve decided you want to become debt free. Now what? A simple google search will bring up hundreds, if not thousands of articles giving you ideas, strategies, and ways to become debt free. All that information can be flat out overwhelming. In fact, it can be so overwhelming that you might not even know where to begin! That’s why I’m breaking down two very common ways to pay off debt: the debt snowball method and the debt avalanche method. This way you’ll be able to truly decide which method will work for you and your journey!
The Debt Snowball Method
Imagine a ball of snow rolling down a hill. As it continues to roll, it picks up more snow and grows larger by the second. This is the illustration behind the debt snowball. It’s a method of paying off debt in order from the smallest debt to the largest debt. As you pay off each debt, the minimum payments for previous debts are added to your payment for larger debts. Eventually, you are left with one large payment to your last debt.
How the Debt Snowball Works
- Write out a list of all your debts from smallest to largest. Don’t worry about minimum payments or interest rates.
- Make the minimum payment on each loan, but pay any extra money you can to your smallest debt.
- Find extra money by budgeting, working an extra job, or selling things around your house that you don’t need. Immediately send that money to your smallest debt.
- As you pay off your smallest debts, take that monthly payment and add it to your next smallest debt payment.
- Pay off your next debt (way to go you!).
- Keep the process rolling until you have one last debt. Pay that bad boy off and then celebrate!
Why We Chose the Debt Snowball
Once we decided that we were ready to start our debt free journey, we were faced with the question of How on earth do we make this possible? To help us decide which method we would use to get out of debt, we sat down and listed out all our debts, their balances, and interest rates. At that time, most of the interest rates on our loans were about the same.
We knew that seeing quick progress and having a few small wins out of the gate would help us keep the momentum to keep going, especially since this journey would take us over 4 years! With that in mind, we decided to follow the debt snowball method. I cannot tell you how amazing it felt to pay off that very first debt! It may have been a small student loan, but it was gone forever. The exhilaration of progress kept us going on the next smallest debt. (You can read our debt free story HERE).
Pros And Cons
Pros: The debt snowball method provides you with an easy “win” by paying off your smallest loan first. These smaller wins along the way give you the motivation to keep going and see progress in your journey.
Cons: Because you aren’t concerned with interest rate in when you use the debt snowball method, you might be paying more interest on some of your larger loans along the way. For instance, if your smallest loan only has a 4% interest rate but your larger loan has a 24% interest rate, you’ll see less traction on your larger loan.
The Debt Avalanche Method
The debt avalanche method focuses on interest rates. Instead of paying off debts in order from smallest balance to largest balance, you pay off the debt with the largest interest rate first. Mathematically, this allows you to pay less in interest over time.
How the Debt Avalanche Works
- Write out a list of all your debts from the largest interest rate to the smallest interest rate.
- Make the minimum payment on each loan, but pay any extra money you can to your loan with the largest interest rate.
- Find extra money by budgeting, working an extra job, or selling things around your house that you don’t need. Immediately send that money to your debt with the largest interest rate.
- As you pay off your debts, take that monthly payment and add it to your next largest interest rate loan.
- Pay off your next debt (way to go you!).
- Keep going until you have only one loan left…the one with the smallest interest!
Pros And Cons
Pros: Theoretically, you’ll send less in the long run to the loan companies. The quicker you pay off those high interest loans, the less money you’ll be paying to your debts!
Cons: Paying off debt is more emotional than it is mathematical. The debt avalanche method might not give you the small “wins” right away. It might take you months to pay off your first debt. The longer it takes you to have that success, the greater the opportunity for you to jump off the debt free journey train. Let’s put it this way: The debt avalanche method sets you up for success, but not as quickly as the debt snowball method. And if you have trouble with staying the course, then you might give up on the debt avalanche method too soon!
Find What Works For You
What it comes down to is that every person’s debt free journey is different. What worked for me, your friend, or a colleague might not work for you. And guess what?! That’s totally okay! We are all unique. And part of being an adult is finding out what works for you! (Can we take a minute to talk about how adulting is so overrated sometimes?!). Whichever method you choose, the good news is that you’re making progress in your debt free journey!