Pay off debt by using one of the two best approaches
Pay off debt by using the snowball or avalanche approach. Tackling debt will be one of the best things you can do for yourself and your future. By knowing your financial health, budgeting and sticking to your plan you can get out of debt. With each credit card paid off you’ll be in better shape.
In this article we’ll go over the snowball approach and the avalanche approach to pay off debt and a list of tips and tricks to help you stick to your budget.
Pay off debt using the Snowball Approach
With the snowball approach, you pay off the card with the smallest balance first. Once you’ve repaid the balance in full, you take the money you were paying for that debt and use it to help pay down the next smallest balance.
This approach takes longer than if you started paying off your biggest debt first, but the mental benefits to the snowball approach makes it more likely you will stick with it. You’ll feel a big sense of accomplishment every time you pay off a debt and feel motivated to continue to the next one.
Getting started on the Snowball Approach
- Organize debts by the smallest outstanding balance first. Make minimum payments to all debts other than the lowest amount account, and attack that debt until paid off and close that account!
- Move to the next lowest balance and attack until paid off.
- Rinse and repeat!
Every debt you pay off will feel like a win, treat it like a win by rewarding your hard work.
Pay off debt using the Avalanche Approach
With the avalanche approach, you pay off the card with the highest balance first. Once you’ve repaid the balance in full, you take the money you were paying for that debt and use it to help pay down the next highest balance.
By tackling the highest debt first you’ll pay off your debt faster, and therefore you’ll spend less money paying interest. It will take an iron will and discipline to stick with this approach because that sense of accomplishment will take a lot longer to get to compared to the snowball approach.
Getting started on the Avalanche Approach
- Organize debts by the highest outstanding balance first. Make minimum payments to all debts other than the highest amount account, and attack that debt until paid off and close that account!
- Move to the next highest balance and attack until paid off.
- Rinse and repeat!
By tackling the highest debt first you reduce your total interest payments and eliminate your debt faster.
More tips to stick to your budget
In conjunction with either the Snowball approach or the Avalanche approach, here are some more ways that will help you pay off your debt.
Pay more than the minimum
When you pay more than the minimum on your credit card debt you’ll pay less interest overall. You can also reduce interest charges by paying your credit card bill as soon as you get it.
Budget to pay off credit card debt
Categorize your monthly spending by groceries, transportation, housing and entertainment. Where are the areas you can cut back? Look for the non essentials like dining out, and unnecessary monthly subscriptions. Also look at fixed monthly expenses like your phone plan and your car insurance. You can lower your cost by adjusting your plan or switching to a cheaper provider.
Take the money you’ve freed up and use it to attack your debt.
Pay with cash
Go old school and see exactly how much money is going out by using cash instead of plastic. Seeing your budget for the week or month can help you avoid making impulse purchases and overspending.
Start an emergency fund
When you are trying to pay your debts off, stashing money in a savings account may seem counterintuitive. However, with a reasonable amount of money in a rainy day fund, you may be less likely to use credit cards when emergency situations arise. A good starting point is to save the equivalent of three months of expenses, and gradually increase your savings account balance
Stick to it!
Getting out of debt takes time and dedication, it will be tough at times, but sticking to it will be worth it. Once all your debt has been paid off, you’ll have money in your budget to put towards retirement, a vacation or a new car. Just stick to it, celebrate your wins, and be proud of yourself for working so hard toward an important goal.