So you’ve decided to get serious about your financial health and you want to start tackling your debt. Maybe you’re wondering, ‘which debt should I pay off first?’ Or maybe you just got your bonus or a tax return and you’re trying to figure out how to get the most bang for your buck. There are two main methods that people typically recommend when it comes to paying off their debts. I’ll explain each of them and help you decide which one is right for you.
Snowball Method
The first and most common debt payoff method is the snowball method. With this one, you continue to pay the minimum payment each month on all of your debts, throwing any extra money at the smallest dollar amount first. Once you’ve paid off your first debt, then you take whatever monthly amount you were putting toward that debt and start to pay off the next smallest amount early. For example, let’s say you have the following debts:
| Debt | Remaining Balance | Interest Rate |
| Credit Card 1 | $8,400.00 | 19.02% |
| Credit Card 2 | $350.00 | 17.00% |
| Auto Loan | $2,100.00 | 5.27% |
| Student Loan | $32,731.00 | 5.80% |
If using the snowball method, you would pay off Credit Card #2 first, followed by the second credit card, your auto loan, and student loans last. Let’s take a look at some of the pros and cons of using the snowball method.
Pros
- Simple
- Have some quick small wins
- Feels like you’re making progress faster
Cons
- You could end up spending a lot more in interest over the life of the loans
The Avalanche Method
The second popular debt payoff method is the avalanche method. With this method, you focus on paying off the debt with the highest interest rate first.
| Debt | Remaining Balance | Interest Rate |
| Credit Card 1 | $8,400.00 | 19.02% |
| Credit Card 2 | $350.00 | 17.00% |
| Student Loan | $32,731.00 | 5.80% |
| Auto Loan | $2,100.00 | 5.27% |
Pros
- You’ll save money on interest
- You’ll get out of debt faster
Cons
- Can be discouraging if your biggest debt has the highest interest
So which debt should I pay off first?
Hopefully when you ask yourself that you now have the tools to evaluate which one’s right for you. Do you know you get discouraged quickly when paying off debts or working toward big goals? Then use the snowball method. Does saving the maximum amount of money totally energize you? Try the avalanche method.
The important thing is that you keep at it. You might start off with one method and realize that it’s not working out well for you. Rather than giving up entirely, try the other one. If you’re having a hard time deciding, try using this website to put in info on your various debts and see how the avalanche and snowball methods compare.
How to Stay Motivated to Pay off Your Debts
One really fun way to keep your goals in the forefront of your mind and stay motivated to pay off debt are these coloring sheets. I’ve also seen a lot of fun spreads you can create yourself in a bullet journal if that’s your jam. And if you’re currently using a budgeting app or website, most have built-in goal settings so you can track your goals there too. Pick whichever sounds most energizing for you, or maybe a combination of all of them! There’s seriously nothing as satisfying as watching your debt shrink week after week.
Which method sounds the best for you?
I’m curious. Which method have you or do you think you will try? I’ve always used the avalanche method because saving as much money as possible gets me fired up. But I love that all of us are so different and there are different strategies we can utilize for our own unique needs!
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