Debt Snowball Vs. Debt Avalanche: Which Is Best for Your Family?
BREAKING DOWN THE DIFFERENCE SO YOU CAN PAVE THE WAY TOWARD A DEBT-FREE FUTURE FOR YOUR FAMILY
Brace yourselves: Experian's recent data reveals that the average total consumer household debt hit a staggering $104,215 in 2023. Yes, you heard that right! It’s a hefty sum that many families across the nation are grappling to pay down.
But the last thing we want is to paint a picture of doom and gloom. Quite the opposite. We’re pretty passionate about giving you the tools you need to educate your kids about debt, so they can make informed decisions throughout their lives – especially when it comes to managing and repaying debt.
That’s where the debt snowball and the debt avalanche come in. Whether you’re dealing with a few hundred dollars or even thousands in outstanding balances, these two debt repayment methods can help you conquer even the most daunting debt.
Debt Snowball: The Power of Momentum
The debt snowball repayment method is just like rolling a snowball down a hill: you start off small and build momentum as you go.
How it works:
List your debts: Order all your debts from the smallest amount to the largest.
Attack the smallest: Focus on paying off the smallest debt first, while making minimum payments on the rest.
Build momentum: Once that smallest debt is paid off, take the money you were putting towards it and let it snowball into the next smallest debt.
Rinse and repeat until you've conquered them all.
Consider the Debt Snowball if:
You thrive on quick wins and need that extra motivation boost
You've got debts in different amounts and you want to start with the smallest ones first
You’d get a serious dopamine boost from seeing those debts disappear, one by one
Before you decide: The debt snowball may sound a bit counterintuitive, especially if you’ve been taught to tackle the big debts first. Here’s the thing: when you knock out those smaller debts first, you gain some serious momentum and motivation to keep going. That consistent action adds up and pretty soon you’ll have paid down a whole wack of debt.
Debt Avalanche: An Interest-ing Alternative
For the strategic thinkers in the family, the debt avalanche might be best for you. Here, you prioritize your debts based on their interest rates, so you can save money in the long run.
How it works:
List your debts: Order all your debts from the highest interest rate to the lowest.
Focus your funds: Put any extra funds towards the debt with the highest interest rate, while making minimum payments on the others.
Avalanche effect: Once you've wiped out the highest-interest debt, move on to the next one and keep chipping away until you're debt-free.
Consider the Debt Avalanche if:
You’re patient enough to play the long game and reap the rewards later on down the line
You've got debts with high-interest rates that are eating away at your finances.
You want to minimize your interest and maximize your savings in the long run
Before you decide: Imagine your debts as snowy mountain peaks, each one representing a different financial burden. Now, picture a relentless avalanche crashing down upon those peaks, wiping them out one by one. It’s the same with the debt avalanche. By focusing on these high-interest debts first, you're essentially triggering a financial avalanche that can sweep away your debts as efficiently as possible.
Final Thoughts…
When it comes to their family’s financial security, wiping out debt ranks high on the priority list for many people. Whether you choose the debt avalanche, the debt snowball, or another approach altogether, the important thing is to is to take deliberate strides toward systematically paying down what you owe.
Embrace whichever strategy resonates with you and start making meaningful progress towards achieving financial freedom for you and your loved ones.
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