There are several different methods used when attempting to pay off debts.
The Debt Snowball method is the method of listing your accounts in order of smallest balance to largest balance and you start with the smallest balance and work your way up. While you are paying as much as you can each month to pay off the smallest debt you are making only the minimum payment on your other accounts. Once you pay off your smallest debt you will then move to the next smallest debt. This method is good for motivating yourself to pay off debts because you see accounts being paid off quickly and the wins keep you going. The downside of this method is that paying your accounts off will end up costing you more money over time because you are not focusing on your higher interest accounts first like you would with the debt avalanche method.
The Debt Avalanche method is similar to the debt snowball method but instead of listing your accounts smallest balance to largest, you instead list them from highest interest rate to lowest. This method is the one that will save you the most money over time because you are tackling the accounts that charge the highest interest first. The downside of this method is that statistically, it is less effective because you are not getting those quick wins that you do with the snowball to keep you motivated and so people give up trying to pay off debt more often with this plan.
Deciding on which plan is best for you is actually pretty simple! Do you feel that you are the type of person that needs to get those quick wins to stay motivated or are you the type of person that feels better about saving money in the long run by tackling the high-interest accounts first.
If you would like to schedule a consultation to discuss these plans and ask questions to learn more please complete the contact form below.