According to a 2021 CNBC report, the average American has $90,460 in debt, including credit cards, mortgages, personal loans and student debt. While repayment can be a constant challenge, there are two methods to accelerate debt payoff: Snowball and avalanche.
While both approaches have their benefits, the best strategy for you depends on your specific financial situation. Learn more about the debt snowball and avalanche methods.
About the Debt Snowball
The snowball method starts with your smallest debt and works up to the largest. Regardless of interest rate, you contribute as much as you can to this lowest balance each month, while paying the minimum on all other loans.
One benefit of the snowball method is seeing results more quickly. These “small victories” can help you stay motivated to reach your goals. On the other hand, if your larger debts have higher interest rates, you will pay more interest over time.
About the Debt Avalanche
Also called debt stacking, the avalanche method starts with your highest interest debt and works backward to the lowest interest debt. Regardless of the balance, you contribute as much as you can to this high interest loan each month and make the minimum payment on all other balances. One benefit of the avalanche method is that you pay less interest over
time. However, this method requires a constant flow of discretionary income. If you suddenly lose your job or need to pay for an expensive repair, you might fall behind on debt repayment.
Which Method to Choose
Certain experts say the avalanche method is better from a financial standpoint, as you will pay less money over time. Yet from a psychological view, smaller payments can make the snowball strategy easier to maintain.
No matter the method you choose, keep working toward your goals! To learn more about savings account options available at Ion Bank, contact us today.