Bestselling author Jason Vitug wrote “You Only Live Once.” He explains the differences between both payment methods and how you can find out which one could work best for you.
According to Vitug, the debt avalanche method targets debt with the highest interest rate first – regardless of the size of your credit card balance.
“Once you’ve paid off the debt with the highest interest rate, you move on to the one with the next highest rate,” says Vitug. “You apply all prior payments from the paid-off debt to the next debt, essentially creating an avalanche.”
Listed below is Vitug’s breakdown on how the avalanche method works:
- List all of your debts, starting with the balance with the highest interest rate and continuing in descending order.
- Focus on repaying the debt with the highest interest rate first, while making minimum payments on the other debts.
- Apply the payments from the first debt (now paid off) to the next debt, and so on.
Unlike the avalanche method, you choose to pay off the smallest debt balances first with the snowball method.
“Once you’ve paid off the smallest debt, you then apply those payments to the next smallest, and so on,” says Vitug. “You’ll eventually have more available money to pay toward the larger debts.
Below is Vitug’s breakdown of the snowball method:
- List all of your debts, starting with the one with the smallest balance.
- Focus on complete repayment of the debt with the smallest balance first, while making minimum payments on your other debts.
- Apply the same payments you made on the first debt (now paid off) to the next debt, and so on.
“Think of your increasing payments as a snowball that grows as it goes down a hill, adding more snow,” says Vitug.
Best Payment Method For You
According to Vitug, the avalanche method might make the most financial sense for you. This is because you’re prioritizing paying off your debt with higher interest rates, and higher rates ultimately cost you more.
“As I’ve discussed previously, debt elimination has a lot more to do with your mindset than with the numbers themselves,” says Vitug.
In contrast, the snowball method might not make the most financial sense for you. Vitug claims that larger balances may be accruing more interest, meaning you’ll end up paying more overall.
“However, this method is best for those who are motivated in this way,” says Vitug. “As the snowball increases in size, the excitement builds, and the momentum continues to grow.”
If you’re having a hard time trying to decide which method to choose, realize that you’re not limited to only one method. You can try both to see what works best for you.
“The best method for you to use is the one that motivates you the most,” said Vitug. “Choose one method first, and if that doesn’t seem to excite you about repaying your debt faster, choose another method.”
Whether you choose to pay off your debt with an avalanche payment or a snowball payment, the bottom line is – you’ll eventually be debt free.
And to help you with paying off debt, use QLCredit’s Debt Tracker – a place to see what you owe each month by seeing all of your loans, balances and monthly payments in one convenient place.
Have you had experience with either snowball or avalanche payment methods? Leave us a comment!
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