Debt Payoff: From Snowballs To Avalanches To Everything In Between


For many people in the U.S., debt is a reality. The national household debt in America is at $13.95 trillion. The debt in this country is made up of student loans, car loans, mortgages, and credit cards. If you've found yourself falling behind on payments, it can feel like a lot of headaches and heartaches. Debt can cause a lot of stress and financial anxiety. Are you ready to eliminate that stress and start paying off your debt? If so, there are several different debt payoff methods you can use to help pay off your debt. Analyze each of these different debt payoff strategies to determine which one is the right debt free journey for you.

But first let's budget

Before you take the deep dive into a debt payoff method, you should create a budget. By creating a budget first, you'll be able to account for all your monthly expenses. Once all of your monthly expenses are accounted for, you'll be able to determine how much extra you have to pay off your debts. Now, some of your debts can be classified as fixed expenses. Fixed expenses are those that remain the same every month. An example of this would be your mortgage. If you've fallen behind on your mortgage payments, you're going to want to make sure you allot more than the minimum each month so you can slowly pay off that debt.

Read More: Budgeting For Every Dollar

Monthly budgets are essential, but if you're not accounting for your money as it comes in, things can easily fall off track. A good way to make sure your money is working for you is to account for every dollar that you have coming in each month. If you get paid once a month, managing your money monthly makes the most sense. If you get paid weekly, biweekly or every two weeks, it makes more sense to budget your money with each paycheck. As soon as you get paid, assign certain expenses to be paid out. Once you get your budget in order, you'll be able to start tackling your debt with the debt payoff method of your choosing.

Debt avalanche method

The debt avalanche payoff method prioritizes paying off your debt balances with the highest interest rate. You make the minimum monthly payments on all of your debts, but pay extra toward your debt with the highest interest rate until it's gone. Then, apply your minimum payment from the eliminated debt plus more to the balance that carries the next highest rate. Saving money on interest means that you will pay your debts off more quickly.

The benefit to this debt payoff method is you're going to save money by paying off the debt with the highest interest first. This also makes the debt avalanche method easy to understand. You pay off the highest-interest debt first, then the next highest, and so on until you're out of debt. Since you're paying off your high-interest debt first, you should have lower interest charges overall. This is compared to using the debt snowball method where you disregard interest rates. In turn, this could help you pay off your entire debt quicker because less interest means less money paid out overall.

Read More: Minimize Your Debt This New Year

Debt consolidation

Debt consolidation is when you take out a loan, or another credit card, and pay off all of your other credit cards. You'll then have that one individual loan or credit card rather than many different credit cards. This debt payoff method simplifies your finances and gives the borrower more favorable loans terms, such as a more competitive interest rate. If you're credit score is less than ideal, debt consolidation might be the option for you. You could see a credit score boost, if you consolidate your debt. Paying off credit cards with debt consolidation could lower your credit utilization ratio, and your payment history could improve if a debt consolidation loan helps you make more on-time payments.

If you're going to use debt consolidation, you must be committed to not using credit cards anymore. You can't be tempted to use your credit cards if you're utilizing the debt consolidation method. Make sure you have a plan in place to avoid running up your credit card debt again.  Consider this method if you're committed to paying off the full amount of your debt under a consolidated loan.

Read More: Maintaining Financial Control In Uncertain Situations

Debt snowball method

The debt snowball method is a debt-payoff strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each remaining debt. Once your smallest debt is paid in full, you add the money you were using to payoff that debt to the minimum amount of the next smallest debt.  Here are the following steps you want to follow if you're using the debt snowball method:

  • List all of your debts from smallest to largest regardless of interest rate (excluding your mortgage)
  • Continue to make minimum payments on all of your debts except the smallest
  • Pay as much extra as possible on your smallest debt
  • Keep doing this until each debt is paid off in full

Use the extra money you have identified from your monthly budgeting, add that money to the payment of the smallest debt balance you have. The benefit of this method is once you payoff one debt, you take the minimum payment, along with the extra, and then apply it to the next smallest debt. This method gives you the sense you are achieving something. This debt payoff strategy provides a psychological boost as after one debt is completely paid off you think, “okay I can do this.” This method provides the instant gratification that some people need to push forward with their debt payoff journey.

Read More: Blueprint To A Stronger Financial Foundation

Credit Counseling

If your debt is too much too handle on your own, you might need professional help to destroy your debt. Credit Counseling is a process in which a certified credit counseling company helps a person in debt make payments to their creditors. It's smart to seek professional help from a credit counselor to help pay off your debt. It's important that you use a certified non-profit credit counseling company. The NFCC can help point you in the right direction of a company that can help you, or you can click here to get stared with Navicore.

When you reach out to a credit counselor, you'll be asked about your current financial situation, so that the counselor can gain an understanding of the specific circumstances that have put you in your current financial hardship. Once the counselor has become familiar with the events that have led you to your current financial situation, they will speak with you about your monthly spending plan and budget. You may be eligible to enter a debt management plan (DMP) whereby you can consolidate your credit card payments and in many cases, interest rates are reduced. By having reduced interest rates your financial obligations will be significantly easier to tackle.

Read More: How Do You Know If You Need Credit Counseling?

Navicore Solutions is a national leader in the field of non-profit financial counseling. We provide compassionate counseling solutions to consumers nationwide in the areas of personal finance, consumer credit, student loans, foreclosure preventions and housing. Contact one of our certified counselors at 1-800-992-4557 or learn more here.

Listen to our Podcast:

Now that you know a little more about different debt payoff strategies, you can make an educated decision about which one is right for your situation. Taking the leap into debt payoff can be hard for some people. Your debt won't just go away on its own; you need to work in order to be debt free. When paying off your debt, be patient because nothing good happens overnight. Take a deep breath and stay positive because you will eventually become debt free.

Katie Fatta bio with side border

Katherine Fatta is the Social Media and Content Specialist at Navicore Solutions. She creates fun and informative social media posts that engage the public. She’s also the host of Navicore’s podcast, ‘Millennial Debt Domination.’ You can listen to our podcast here.

You can follow Navicore Solutions on Facebook, Twitter, LinkedIn and Pinterest. We’d love to connect with you.



Go Back