Paying off multiple debts can be quite challenging. But then, it is not rocket science; all you need to make it happen is to create and stick to an effective debt repayment strategy. As you seek to clear your debts, it's safer to choose a method that will motivate you to stay on track.
Two common approaches you might consider are the snowball and the avalanche method. While the snowball method gives you a psychological evaluation, the avalanche strategy is all about minimizing your cost and maximizing your time.
Each method offers you an effective and efficient way of addressing your multiple debts, even though they prioritize debts differently. So, you need to understand the differences between them to know which one is best to get you into financial freedom.
What are the Differences Between The Debt Avalanche and The Snowball Methods?
A clear similarity between the avalanche and the snowball method is that both approaches strive to achieve one aim: getting you out of debt. However, the methods differ in specific areas such as priority, structure, and time. Let's consider each method in detail so you can draw the line and make better-informed decisions.
Debt Snowball Method
The snowball method requires you to pay off your debts with the smallest balance first. Because this method goes from debts with a lower to a higher interest rate, you may find it convenient as it boosts your motivation to stick to it. This method works if you need encouragement to keep to the repayment plan and motivation to see your debt paid off in turns.
Here are some of the expected benefits and downsides of the snowball method. Pros:
It gives you the momentum to stick with the plan after you've paid off a debt.
It gives you the need to add more money towards your repayment plan, thereby creating a "snowball effect."
Cons:
It takes longer than the avalanche method.
It will cost you more as you pay more in interest over time.
Debt Avalanche Method
The avalanche strategy requires you to pay off debts from the ones with higher interests to the ones with lower interests. This method will likely take you longer, but in the end, you'll get out of debt, paying less interest than the snowball method. The avalanche method may be the right approach if you're more disciplined and patient.
Pros:
By settling debts with the highest amounts first, you get to save more money.
Your debts decrease faster because the interest fees decrease as well.
Cons:
Motivation and encouragement might reduce over time as it may take longer for you to see significant changes.
Conclusion
If you're looking to make a bold step on your multiple debts, a debt repayment plan is an unbeatable step towards that goal. Whether the debt avalanche or debt snowball method will work for you all depends on your personal preferences and circumstances.
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