When it comes to paying off debt, math isn't the only factor. Psychology plays a huge role in keeping you motivated. That's why financial experts often debate between two main strategies: the Debt Snowball and the Debt Avalanche.
The Debt Snowball Method
Popularized by Dave Ramsey, this method focuses on small wins to build momentum.
- How it works: List your debts from smallest balance to largest balance, regardless of interest rate. Pay minimums on everything else, but throw every extra dollar at the smallest debt.
- The Pros: You get quick wins. Paying off a $500 credit card bill feels great and proves you can do it.
- The Cons: You might pay more in interest over time because you aren't tackling high-interest debts first.
The Debt Avalanche Method
This is the mathematically optimal route.
- How it works: List your debts from highest interest rate to lowest. Attack the debt with the highest APR first.
- The Pros: You save the most money on interest and get out of debt faster mathematically.
- The Cons: It can take a long time to see a debt completely disappear, which can be discouraging.
Which Should You Choose?
If you need motivation and quick wins to stay on track, choose the Snowball. If you are disciplined and hate seeing money go to interest, choose the Avalanche.
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