Being in debt can be a daunting and overwhelming experience. It can feel like you’re trapped in a never-ending cycle of bills and payments with no hope of ever getting out. Or like you’re constantly running on a treadmill but making no progress in your fitness level. If you’re one of the millions of people struggling with debt, you might be wondering what your options are. Two of the most popular methods for paying off debt are the debt snowball and debt avalanche methods. While both are effective, the debt snowball method is the better choice for those in debt. In this post, we’ll explain why.

What is the Debt Snowball Method?

The debt snowball method is a debt reduction strategy that involves paying off debts in order from smallest to largest. You start by paying off the smallest debt while making minimum payments on your larger debts. Once you’ve paid off your smallest debt, you take the money you were using to pay it off and apply it to your next smallest debt. You continue this process until all your debts are paid off.

One of the biggest advantages of the debt snowball method is the psychological boost it provides. When you pay off your smallest debt, you feel a sense of accomplishment and motivation to keep going. It’s like a snowball rolling down a hill, gaining momentum as it goes. The debt snowball method is also a great way to build momentum and create positive financial habits.

For example, let’s say you have three credit cards with balances of $500, $1,000, and $2,000. Using the debt snowball method, you would start by paying off the $500 credit card while making minimum payments on the other two. Once the $500 credit card is paid off, you would take the money you were using to pay it off and apply it to the $1,000 credit card. You would continue this process until all three credit cards are paid off.

What is the Debt Avalanche Method?

The debt avalanche method is a debt reduction strategy that involves paying off debts in order from highest interest rate to lowest interest rate. You start by paying off the debt with the highest interest rate while making minimum payments on your other debts. Once you’ve paid off your highest interest debt, you take the money you were using to pay it off and apply it to your next highest interest debt. You continue this process until all your debts are paid off.

The biggest advantage of the debt avalanche method is that it can save you money in the long run by reducing the amount of interest you pay. By paying off your highest interest debt first, you’re reducing the amount of interest that accrues on that debt over time. This sounds like you can ultimately save you thousands of dollars in interest payments. But there’s a realistic statistic that counters this seemingly positive reason, which we’ll discuss at the end.

Back on track. For example, let’s say you have three credit cards with balances of $500, $1,000, and $2,000, and interest rates of 10%, 15%, and 20%, respectively. Using the debt avalanche method, you would start by paying off the $2,000 credit card with the 20% interest rate while making minimum payments on the other two. Once the $2,000 credit card is paid off, you would take the money you were using to pay it off and apply it to the $1,000 credit card with the 15% interest rate. You would continue this process until all three credit cards are paid off.

Why the Debt Snowball Method is Better.

While the debt avalanche method can save you money in the long run, we believe the debt snowball method is the better choice for those in debt. Here’s why:

1. The psychological boost: As we mentioned earlier, the debt snowball method provides a psychological boost that can be incredibly motivating. By starting with your smallest debt, you’re more likely to feel a sense of accomplishment and motivation to keep going. This motivation often causes people to pay off debt faster with the snowball method, compared to the avalanche system. Money is more about psychology than it is logical analysis – after all, it wasn’t logical to rack up those credit cards in the first place.

2. Quick wins: By paying off your smallest debt first, you’re able to achieve quick wins that can help you stay on track. This can be especially helpful for those who are just starting their debt reduction journey and need some positive reinforcement. It’s the essence of checking off an item on the honey-do list or a huge work project.

3. Building momentum: The debt snowball method is great for building momentum and creating positive financial habits. By paying off your smaller debts first, you’re creating a habit of paying off debt and making progress towards your financial goals. You know that’s so important because finances are mostly a behavioral issue.

4. Flexibility: The debt snowball method is also more flexible than the debt avalanche method. With the debt snowball method, you can adjust your payments as needed to accommodate changes in your income or expenses. With the debt avalanche method, you’re committed to paying off your debts in a specific order, regardless of any changes in your financial situation, which causes most people to give up.

5. It becomes automatic: Contrary to its name, the avalanche system feels more like climbing up the steepest part of the mountain. Sure, once you cross the peak, you’ll be great, but if you fall you end up falling backwards and you’ll lose momentum. Not so with the debt snowball method – with it you make a small snowball of payments and start rolling it down the top of the mountain. That snowball grows and grows, and finally takes off with its own momentum when you reach the steepest part of the mountain. When does that feeling happen? When you pay off 50% of your debt you will have very real momentum to help you pay off the remaining portion.

While both the debt snowball and debt avalanche methods are effective debt reduction strategies, the debt snowball method is the better choice for those who are serious about changing their financial stance. By starting with your smallest debt and working your way up, you’ll experience a psychological boost, achieve quick wins, build momentum, and have more flexibility in your payments. And here’s the kicker. Logically, it seems like the avalanche method would be faster, but most people who use an amortization schedule will foresee that the actual difference is less than six months. Why is that important? Because the motivation from the snowball method decreases the timeline and gives you a better chance of success.

If you’re in debt and looking for a way to pay it off, we highly recommend giving the debt snowball method a try. And if want some encouraging help, feel free to check out our Coaching Sessions – the first one is free.

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