There are a few ways to go about tackling debt. Start by writing out each of your debts and include the balance as well as interest rate. After that read about the two most common methods for paying off your debt and see which one will work best for you. Avalanche vs. Snowball.
Debt Snowball– To pay down debt using this method, begin by paying the debt with the smallest balance. Once it has been paid, go to the next largest balance. This will build momentum and also be encouraging to continue paying down debt. This route is less intimidating and more manageable to start with. If you need motivation and want to start small, go with this method.
Debt Avalanche– To pay down debt using this method, begin by paying off the debt that has the highest interest rate. This method is the most efficient and will be the cheapest way out of debt. It will save you money and time. If you don’t use this method, your high interest balances will continue accruing and it will take you longer to pay off. If you want to save money & time, go with this method.
How do you know which way is best for you?
If you are the type of person who performs better with small victories, the snowball method will keep you encouraged and ready to keep taking on debt. On the flip side, if you are the type of person who see’s the big picture, the avalanche method is the most beneficial in the long run. If you have had a difficult time paying down large balances in the past, start with the snowball method and work up to the large balances. Make a plan and goals to paying off your debts with whichever method works best for you.