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There are two methods to pay down debt.
The snowball method
The avalanche method
Both methods work. The method you choose depends on which one you believe you will be able to stick to.
The Snowball Method
Rank your debts in order of smallest to largest.
With this method you pay the minimum amount towards each debt. Then pay extra to the smallest debt with the goal to pay this off first.
Once the first smallest debt is paid off, you take the minimum amount plus the extra amount you were paying and now pay it to the second smallest debt, and so on until you’ve paid off all your debt. Always make sure to take whatever you’re paying towards the current smallest debt and use that to pay for the next smallest one once the first debt is paid off. This means that over time you’ll be paying more towards debt which will result in you paying it off faster than if you only paid the minimums.
This method works if you’re the kind of person who enjoys seeing the success of your efforts quickly. You’ll find it motivating to watch each individual debt be paid off.
The Avalanche Method
Rank your debts in order of highest to lowest interest rate.
With this method you pay the minimum amount towards each debt. Then pay extra to the debt with the highest interest rate with the goal to pay this off first.
Once the debt with the highest interest rate is paid off you take the minimum amount plus the extra amount you were paying and now pay it to the next debt with the highest interest rate, and so on until you’ve paid off all your debt. Always make sure to take whatever you’re paying towards the debt with the highest interest rate and use that to pay for the next one once the first debt is paid off. This means that over time you’ll be paying more towards debt which will result in you paying it off faster.
This method works if you’re the kind of person that wants to pay less interest and reduce your total debt faster, and has the discipline to see it through even though it may take longer to see the results of your efforts and each debt paid off.
Now it’s time to consider your own debts. “Mark Complete” to continue.
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