Caramelle
Active member
If you have multiple debts that you have to pay at the same time, you need a strategy to make sure that you are allocating your payments in the most effective way towards the extinguishment of your debts. Two methods usually come to mind: the debt snowball method and the debt avalanche method.
Both methods entail making a list of all your debts and prioritizing one debt by paying extra to accelerate its full payment while only paying the minimum for the rest. The difference between the debt snowball and debt avalanche lies in choosing which debt you should prioritize in the payment schedule.
In the debt snowball approach, you will prioritize the payment of the smallest debt in the list then work up to the bigger debts until they are all paid off. It doesn’t consider interest rates and may turn out to be more expensive, but the morale boost you can get out of striking those debts off your list can give you the motivation you need to stay on the course.
In the debt avalanche approach, you will pay the minimum amount for all other debts while paying extra funds towards the debt with the highest interest. This is mathematically sound as this will result in a lower interest payment overall. However, this will require more discipline as there are no immediate successes to look forward to.
Which one works for you considering your personality and unique situation?
Both methods entail making a list of all your debts and prioritizing one debt by paying extra to accelerate its full payment while only paying the minimum for the rest. The difference between the debt snowball and debt avalanche lies in choosing which debt you should prioritize in the payment schedule.
In the debt snowball approach, you will prioritize the payment of the smallest debt in the list then work up to the bigger debts until they are all paid off. It doesn’t consider interest rates and may turn out to be more expensive, but the morale boost you can get out of striking those debts off your list can give you the motivation you need to stay on the course.
In the debt avalanche approach, you will pay the minimum amount for all other debts while paying extra funds towards the debt with the highest interest. This is mathematically sound as this will result in a lower interest payment overall. However, this will require more discipline as there are no immediate successes to look forward to.
Which one works for you considering your personality and unique situation?
