Last updated on October 31st, 2019
Watching large chunks of your paycheck go towards credit cards, student loans, car loans, and a mortgage can be disheartening and make you feel like a puppet who has lost control of its life.
When you’re in debt you are forced to work and earn money that you can’t even enjoy. Your creditors get to enjoy the fruits of your labor.
If you ever want to enjoy true financial freedom you need to cut the puppet strings and rid yourself of debt for good. Obviously that is easier said than done, but with hard work and determination you can do it.
But where should you begin? What is best and most effective way to pay down debt?
Let’s take a look at two popular debt repayment methods called the debt snowball and the debt avalanche.
The Debt Snowball
The debt snowball technique has been championed by radio talk show host Dave Ramsey and it involves paying off your debts starting with the one with the lowest balance.
You only pay the minimum amount due on all other debts while throwing as much extra money as possible at the smallest one. Once that is paid off you move on to the next smallest debt and attack that one with all the extra money you can spare.
You keep going from there, always attacking the debt with the lowest balance until you are debt free.
Like a snowball gathering speed and getting bigger as it rolls down a hill, your debt payments build momentum and keep you going until they’re all gone.
The disadvantage to this method is that if your smaller balances have lower interest rates than other debt, you will end up paying more interest in the long run.
The main advantage is the psychological boost of paying off that first debt and the momentum it can provide to stick with the plan.
The Debt Avalanche
The debt avalanche method is very similar to the debt snowball, but you arrange your debts in a different order.
If you choose this method you will line up all of your debts in order from the highest interest rate to the lowest.
You pay the minimum amount due on each of them and then pay as much as you can toward the one with the highest interest rate.
Once that first debt is paid off you simply move on to the one with the next highest interest rate.
This method will ensure you pay the least interest but it can be tough to stay motivated if that first debt has a particularly large balance.
So Which Method is Best, Debt Snowball or Debt Avalanche?
If you do the math you’ll see that the debt avalanche method will pay off your debt fastest and cost you the least amount of interest charges, so logically that would be the best method.
But most people are not completely logical like Mr. Spock.
Instead, we sometimes let our emotions get the best of us.
This is exactly why Dave Ramsey advocates the debt snowball method. He believes that even though they will pay a little more interest using his method, they are more likely to stick with it for the long term.
In the end, there is no one right answer.
Remember, they don’t call it personal finance for nothing. The best debt repayment method is whichever one works best FOR YOU.
Mike Collins has been working in the financial industry since 2002 and is a self-proclaimed money nerd. He’s written for numerous personal finance websites and been featured on sites such as MarketWatch, Fortune, and Business Insider. Mike created Wealthy Turtle to give readers the tools and knowledge to manage their money like a rock star.