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Pay Off Your Debt

  • January 5, 2020
  • By: Greenpath Financial Wellness

If you are dealing with debt, you aren’t alone. The average American household has an average balance of about $6,600 in credit card debt,  and that’s not taking into account home, auto, and student loans. Paying off your debt isn’t always easy, but having a plan can go a long way in achieving your financial goals.

Two of the most popular strategies for paying off debt on your own are the snowball method and the avalanche method. Both methods require making the minimum monthly payments on all but one debt, which you put extra money towards.

The Snowball Method

With the snowball method, you begin by paying off your smallest debt first. This method creates a sense of motivation and accomplishment from being able to pay off smaller bills at a higher frequency.

How it Works

Let’s say you have the following debts:

  • Credit Card A: $3,500, 17.99% APR
  • Credit Card B: $7,500, 15.00% APR
  • Personal Loan: $1,000, 10.05% APR

Using the snowball method, you would pay the minimum monthly payments to the credit card debts, and pay any extra that you can to the personal loan until it is paid off. You would then apply the extra payments to Credit Card A until it is paid in full.

Pros and Cons

With the snowball method, you are able to see progress faster. Quick wins can help you stay motivated to keep going. However, with this approach, it will take you longer to pay off your largest debts—and those are often the ones that carry the highest interest, so you’ll likely end up paying more overall.

The Avalanche Method

The avalanche method takes into account the fact that high-interest debts cost you the most money over time. Using the avalanche method, you pay off your highest interest debts first.

How it Works

Let’s look at the same scenario as above.

  • Credit Card A: $3,500, 17.99% APR
  • Credit Card B: $7,500, 15.00% APR
  • Personal Loan: $1,000, 10.05% APR

With the avalanche method, you’d pay the minimum monthly payment on Credit Card B and the Personal Loan, and pay extra towards Credit Card A, since it has the highest interest rate. Once it was paid off, you’d move on to Credit Card B.

Pros and Cons

This is the fastest way to eliminate debt and save on interest payments. However, it can take years to eliminate this debt while other smaller bills still trickle in.

Which option is best for you?

It comes down to what you feel most comfortable with. Ultimately the best method is the one you can stick to.  If you’re motivated by quicker victories, the snowball method may be the right option for you. If you want to pay the lowest amount of interest, you’re likely better off choosing the avalanche method.

Looking for more options to pay off your debt?  Click here to learn about debt management plans, balance transfers, debt consolidation, and more.

GreenPath is Here for You

At GreenPath Financial Wellness, we are working to make it easier for everyone to achieve financial health. We can help you gain a better understanding of your spending habits, and we can help you create a plan to pay off your credit card debt. Our financial coaches are kind and caring. We can help you understand your finances and make a plan to meet your goals. It’s free, confidential and no pressure!

Call today for a free financial counseling session.

Dusti Young Dusti Young has a passion and energy for spreading financial wellness. Through her role at GreenPath, she connects people to financial wellness by working with GreenPath’s partners. Dusti has been with GreenPath for nearly 13 years and has held a number of roles, including financial counselor, business analyst, and her current role, Partner Relations Specialist.