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Which Debt Repayment Strategy Is Right for You?

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We’ve focused on giving you the information you need to know to get rid of your credit card debt once and for all this month. So far, we’ve explained how to get your debts organized and how to balance building up your savings while paying down debt.

Today, we want to discuss how you can choose a debt repayment strategy to make sure you stay on track and reach debt freedom as soon as you can. These methods can help you power through and repay every last balance.

The Debt Snowball

The debt snowball is a debt repayment strategy popularized by financial guru Dave Ramsey. This method asks you to take stock of all your debts — loans, credit cards, mortgages, and other lines of credit with balances — and list them in order of smallest balance to biggest.

That’s the only factor you need to take into account. So, for example, if you have three student loans and owe $5,000, $10,000, and $15,000 respectively, that’s exactly the order you list them out in. And that’s the order you’d work to pay them off in, too.

The debt snowball has you put as much money as you can toward your debt with the lowest balance first, while still maintaining minimum payments on your other balances. Once you repay that first debt, you take the amount of money you were applying toward it, and combine it with the minimum payment you were making on the loan with the second-lowest balance.

Your payment on this second-lowest balance loan “snowballs,” because the payment is the combination of what you paid toward the first loan and the minimum payment you were already paying on the second.

You’ll continue to snowball your payments and knock out your debts one by one, until you’re debt free.

The Debt Avalanche

The debt avalanche is another system for repaying your debt. With this strategy, you again take stock of all your debts and list them out — but this time, you’ll order them by interest rate.

With the debt avalanche, you’ll list them out in order from highest interest rate to lowest (regardless of balance). Then you’ll work to repay the balances in that order, taking out the loan with the highest interest rate first, then the second-highest, and so on.

The only difference from the debt snowball is the order in which you repay your loans. The biggest advantage to the avalanche is, from a mathematical standpoint, you come out ahead because you’re getting rid of your most costly loans first. Because you’re knocking out loans by interest rate, you’ll gradually pay less in interest over your repayment period.

Choosing a Debt Repayment Strategy

There’s no “wrong” way to knock out balances and become debt-free. But there’s probably one strategy that works best for you over other options. So how do you choose the ideal system for your personal situation?

Start by understanding your own personality. The right strategy is likely the one that’s a good fit for you and the way you think. It’s not necessarily about the details of your debt.

The debt snowball does a good job of taking the emotional and behavioral part of personal finances into account. For many of us, money is about more than just the numbers — it’s how we feel and think about it.

The snowball can keep you on track because it gets you to a “win” quickly. Since you’re paying off the lowest balance first, this repayment strategy will likely knock out your first loan faster than other methods of paying down your debt.

This can be the difference between sticking to the hard work it takes to become debt free, and getting frustrated and overwhelmed by the process.

The debt avalanche is, mathematically speaking, usually better than the snowball. That’s because you focus on getting rid of the debt with the highest interest rate first, regardless of balance. This should save you money over the long-term because you’re lessening how much you’re paying in interest.

But if your highest-interest loan also comes with a bigger balance than your other loans, it’s going to take you longer to repay that debt than if you focused on knocking out loans with balances in order from smallest to largest. For some, it’s emotionally tough to have that first milestone be further down the road.

And that’s okay — it feels good to get rid of loans or balances on your lines of credit!

It all depends on what motivates you. If paying off your first loan ASAP will keep you going and prevent you from feeling discouraged or hopeless, choose the debt snowball. If you want to put an end to interest rates eating up your discretionary income, choose the debt avalanche.



What About Debt Consolidation?

Debt consolidation is another strategy that may be helpful if you’re struggling to keep track of multiple loans and their payments, due dates, and other information. Consolidation can also help those who have high interest rate loans but good credit scores (be sure to check your credit score with a free credit report on a regular basis).

When you consolidate, you start by taking out a single loan for the total amount of the debt you want to repay. You take the borrowed money from the new loan and repay all the individual loans with balances you already had. Then, you work to repay the single, new loan.

This is a good option if you’re feeling overwhelmed because it simplifies your financial situation. Instead of having multiple loans to keep track of, consolidating leaves you with a single loan — with a single interest rate, monthly payment, and due date.

It’s also worth looking into if your current loans carry high interest rates that cost you money. There’s no guarantee, but you can shop around with different lenders to possibly consolidate existing loans for a lower interest rate. This not only simplifies your debts — since, again, there will only be one balance to keep up with — but it could also save you money if you can get a lower interest rate.

Just make sure you take all the fees into account. A new loan may come with a lower interest rate, but the loan origination fees may mean it’s a wash when it comes to saving money. Everyone’s situation is different, so do the math before making any decisions.

Comments (41) Leave your comment

  1. Anchor finance was paid off a month ago why does it still show open and there’s couples of things on there that is closed and still on there how do I get that off

  2. Im in the process of repairing my credit. My situation is unique because I’m going to be receiving unemployment benefits after I get a job and work at lest one more week to quality for unemployment. I would remain on this job of couse and their would be an off set. My question is how can I un spiral from this mess by saving $10.00 from each pay?

  3. I have 2 old credit cards that I have reported 1 is credit one and paid off in November 2017 to a credit card collection and know they give me a rim around to get off my report and miscast was a secured card and was overstated by twice secured limimit what do I do about this and have reported it to credit burues with no responses

    1. So sorry to hear you’re having this issue. Every person’s situation is different, so we’re not able to give personalized advice here. But if you download the Turbo app, it will give you the correct contact information for TransUnion on the credit score page.

  4. They should really teach both these methods in school. I know many people they have worked for. I did the debt avalanche method. It took over a year to pay off the first debt, but after that I was paying off the next thing on my list every few months. Using this method, I’ve paid off everything but my mortgage, and I’ll have that paid off before I have lived in my house for 10 years. It’s also great since I have a good way to quickly pay off any debt I accumulate in the future. But be sure to talk to someone about how to keep your credit score up after you’ve paid off all your cards and loans.

    1. Thanks for sharing your story, CJ! This is a really great testimony for those looking to pay off debt that the avalanche method works. As you say, getting the biggest debt out of the way first can take some time, but once that ball gets rolling, it starts moving faster!

    2. Isn’t the whole idea of getting a good credit score is to get more debt? If the objective is to become debt free who cares about the credit score?

  5. Hello. I have several personal loans and a student loan equaling at least $40k or more in student loans. That’s not including the small loans. My credit score is very low at 528. An I eligible for this method? It surely would help.

  6. I’m in a quandry… I’ve used 0% CC to fix up my new home. I have not paid any interest on these cards and when the 0% went away I tucked the card in my desk. I currently have 6 open CC accounts w/0%, all on schedule to be paid off early-before any interest kicks in. So.. I have a mort at 3.75% 34K, veh at 5% 13K, 6 CC @ 0% at4.1K by 12/31. I’m focusing on killing the CC balances 1st and paying $100/wk extra on mort. Good strategy? Or change? Thoughts?

    1. Instead of applying the $100 towards your low interest mortgage loan, I suggest saving it. From experience, you need a rainy day savings for car & house repairs. Finding a high interest CD would offset the interest from the mortgage. Build that Fund for a 6 months income increase you lose your job. After those no interest CC are paid off, saving will be easier.

  7. Tried to get a debt consolidation loan to lower rates and lower my payment..HA! The rates I’m quoted for the loan are just as high as my cards. There is absolutely 0 benefit. It’s financially easier to juggle multiple payments when your living paycheck to paycheck then consolidating all of it into one payment UNLESS the payment is going to significantly reduce the amount paid out each montu and lower the cost on the borrowed on the money overall. That isn’t happening in my case…not even a little. Its messed up because I have no lates, good DTI and only one bad medical debt from 6 years ago for under 200 dollars. The ONLY thing hurting my score is the amount of credit I’m using. I’ve seen people with bankruptcies and foreclosures have higher scores than me ( I work in the finance industry). The whole credit score system is total BS.

  8. Hi my name is Teresa. I need to learn how to better put aside and how to provide for myself and my daughter. We have just started our new life without my husband and I have no idea what I am doing. He controlled all aspects of the money flow in our home and now it has left me fumbling and not knowing what to do. Please help if possible!

  9. How long after paid off to accounts stay on your credit report. I have several that are over 7 years old on credit report. What can I do to get number of accounts down

  10. Disability have this thing they call ticket to work. You can work at home. You should look it to it for extra money.

  11. Hi!
    My credit score went down in the last couple months and I have no idea why. Also, the last time I received/saw a report of my credit, I saw that the bankruptcy I filed for back in 2010 is still showing when I was told that it would not “count” or affect me after seven… How certain is this information? Last but not least, there are few accounts that appear as still outstanding when I already either paid them or made an agreement with the debtor. What and how should I do in order to clean them off the report? Could you please help me with this questions?

    Thanks in advance.


    1. They say it is 7 years, it’s really 10 years. If you’ve been good with your credit since filing bankruptcy, you will notice a difference once you pass the 10 year mark. You should also receive a letter at that time saying your bankruptcy has been discharged.

  12. My ex husband and I purchased a home together. We got divorced and in our divorce agreement he took full legal and financial responsibility for the home. He stopped making payments on it. He has remarried and since has been in the process of refinancing the home. Is there anyway I can get this home off my credit? It’s the big thing holding me down.

  13. In the area that states my debt compared to other 36 year olds it states that 165,000 debt. Should I be more in debt? I don’t understand that part if I could get a little more clarification I would greatly appreciate it.

    1. it’s saying the average person your age has that much debt. Ideally you shouldn’t have any debt other than your house if you own, then you can save up your money and invest or buy things with all cash and build wealth.

  14. I opeed up a claim with each credit bureau for the creditor that was still showing. The bureaus will contact that disputed creditor, giving them 30 days to respond. If they don’t respond then they’ll automatically remove them from your credit report. To speed things up, I also sent in proof of the payoffs & when they were paid. My score improved by 100 pints, I kid you not!! Be aggressive with these companies bc that’s your money & your livelihood!!

  15. We are in desperate need of a bigger home. Our credit score is 528 because we had about a two year span of horrible luck financially. We have found a home but because of the low credit score we feel it isn’t possible. Would it be smarter to pay off our debt (we have the money for that, all but our vehicle loan-just 1) or save that for a down payment? Because it is all the money we have saved up and no “gift money” out there to borrow or have.

  16. Hello it just me and my son I been working a good little time. But stuck with little wage salary just to get was apart of the deal. I never taken out any loans. If when i was attended a city college through class of 2008 -2014.

    1. A lot of mine are to! I’ve already disputed them. You should be able to in the app. If you have proof, send to them, that way they have proof

  17. Can inquiries be removed? I have 7 credit inquiries and 6 of them pertain to an automobile purchase.
    Quite unfair since I wound up needing a co-signer anyway. This limits the new credit I can apply for. Is there anything I can do about this?

  18. Help! More than 90% of my debt is in student loans. Can someone please reach out to me so that I can learn how to address my crippling debt?

  19. I was told to ask the credit reporting company to verify this account. If they can not verify it then they must remove it at your request.

  20. What/who are the best and most legitimate debt consolidation companies? I’m most interested in consolidating credit card debt. Seems a daunting task to just find the best most reputable companies to go to for this option.

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