Clearing debt: Avalanche or Snowball method?
Getting into debt can be stressful, but finding a way to pay off your debts can feel like a daunting task. Fortunately, there are a few different strategies you can use to make it easier. Two popular repayment methods are the avalanche and snowball methods. In this article, we’ll explain the pros and cons of each method and provide a step-by-step guide on how to use them.
The Avalanche Method The avalanche method involves paying off your debts with the highest interest rates first. Here are some of the pros and cons: Pros:
You’ll pay less in interest over time
You’ll get out of debt faster overall
You’ll save more money in the long run
Cons:
It can be discouraging to see little progress at first, as the highest interest debts tend to have the largest balances
You may need to be disciplined with your spending in order to make larger payments towards the high interest debts
Step-by-Step Guide:
List out all of your debts and their corresponding interest rates
Make the minimum payments on all of your debts
Put any extra money towards the debt with the highest interest rate
Once the debt with the highest interest rate is paid off, move onto the debt with the next highest interest rate
Repeat until all of your debts are paid off
The Snowball Method The snowball method involves paying off your debts with the smallest balances first. Here are some of the pros and cons:
Pros:
You’ll see progress quickly as you pay off debts
You’ll feel motivated as you cross off each debt from your list
You may be able to eliminate some debts entirely, which can help simplify your finances
Cons:
You may end up paying more in interest over time, especially if you have high interest debts with larger balances
It may take longer to pay off all of your debts overall
Step-by-Step Guide:
List out all of your debts and their corresponding balances
Make the minimum payments on all of your debts
Put any extra money towards the debt with the smallest balance
Once the smallest debt is paid off, move onto the debt with the next smallest balance
Repeat until all of your debts are paid off
Ultimately, the best repayment method for you will depend on your personal preferences and financial situation. However, using either the avalanche or snowball method can help you get on track to becoming debt-free. If you are interested in other methods of paying off debt, feel free to check out our guide to paying off debt and becoming debt free by clicking here.
If you're struggling with debt, there are a variety of charities in the UK that offer free debt advice and support. Some of these include:
StepChange Debt Charity: www.stepchange.org / 0800 138 1111
National Debtline: www.nationaldebtline.org / 0808 808 4000
Citizens Advice: www.citizensadvice.org.uk / Check their website for local contact details
Remember, it’s never too late to take control of your finances and work towards a debt-free future.