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Snowball or Avalanche: Strategies to crush your mountain of debt

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One of my private loans is out of its grace period, and paying back over $35,000 in college loan debt is daunting to say the least.

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I recently got a letter from my loan creditors that gave me the chills. One of my private loans is out of its grace period, and paying back over $35,000 in college loan debt is daunting to say the least. Here are two methods that I am going to employ in order to start effectively demolishing my debt and moving closer to financial freedom. I think these methods can help you too.

The Snowball Approach
Imagine you have three outstanding debts of $100, $500 and $1000, each with varying interest rates. The snowball method means you start with the lowest balance, and pay it off as soon as possible. After you pay off the lowest balance, you use the money budgeted to pay the first loan and attack the next loan, then you keep going until you crush your debt.

The snowball method isn’t just financial, it has psychological benefits as well. When choosing between different debt-repayment strategies, psychologists have found that people generally choose the option that makes them the happiest, even when it might not be the most fiscally sound. However, the snowball approach creates a continuous cycle of payment that can help you commit to pay.

The Avalanche Method
While the debt-snowball method focuses on paying your debt down as quickly as possible, the avalanche method focuses on paying down the debt with the highest interest rate first. In this scenario, you pay your minimum payments, but in addition you take all your disposable income left over for the month and apply it to that debt.

This approach makes the most fiscal sense, as you will save on interest over time. The avalanche method can be really tough though, since it can be hard to stay motivated when you only see your loan moving down in small portions every month. Luckily, personal finance apps like ReadyforZero and Tuition.io can help give you a leg up when you decide to get your avalanche rolling.

Which one to choose?
When it comes to paying off debt, the “best” idea is the one that will work for your specific situation. With the snowball method you have a psychological advantage, but you will end up paying more in interest in the long run. However, loans also have an emotional component, and I know when I see my loans decreasing, it gives me motivation to keep paying them off.

What matters most is committing and sticking to your plan so you can build the right momentum to achieve your goals. My finances are equally tied to my emotional and financial wellbeing, so constructing a plan that addresses both is what will help me (and probably you) in the long term.

Beating Debt Forever
You can check out Unbury.me, a debt calculator, to see which strategy can work better for your debt. For me and many others, the key is combining both the snowball approach and the avalanche method in a way that maximizes my financial goals while giving me peace of mind at the same time.

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