If you are finding yourself heavily indebted you are probably asking yourself: “What is the best way to pay off all of my debts?” The two most popular debt reduction strategies that anyone can apply are the so-called snowball method and the avalanche method. In this article, you will be introduced to both methods and you will find out which one you should actually be using.
What is the best way to pay off debt?
1. The Snowball Method
The snowball method is probably the most talked about debt management strategy today. The snowball method refers to paying off your smallest debt first and then moving on to the next biggest debt, continuing like this until you have paid off your largest debt last. The idea behind this is that you gain momentum as you are paying off the smaller amounts first and then move on to the bigger ones just like a snowball rolling down the mountain.
While the snowball method is good for people who require small wins to keep their momentum going, it is neither the most efficient nor the most economical way to pay off your debts.
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2. The Avalanche Method
The avalanche method, on the other hand, allows you to pay off your debts quicker and in a more economically efficient manner. The avalanche method refers to paying off your highest interest bearing debt first and then moving on to the second highest interest bearing debt regardless of the debt amounts until you have paid all of them off. Using the avalanche method, you will not only take a shorter period of time to pay off all your debts but you will also save money as you will end up paying less in total interest costs throughout the duration of your debts.
The avalanche method is the mathematically best way to pay off all your debts and is, therefore, the debt reduction method you should be using.