What Debt Repayment Method Is Best For You?

When it comes to repaying debts, there are two main strategies that you can use to manage and pay off your repayments – debt avalanche and debt snowball. Both methods require you to make a list of and make minimum repayments on debts and then, once that is paid off, you can make a start on targeting another balance and repeat this process until you have paid down and managed your debts.

Managing and dealing with debt can be overwhelming and difficult to understand, which is why getting on top of it as soon as you can is the best approach you can take, from a financial perspective and a mental health one too. With that in mind, let’s take a look at debt avalanches and debt snowballs in more detail.

What Is The Debt Avalanche Method?

The debt avalanche method involves you paying off debts that have the highest interest rate first, and then beginning to work your way through the rest of your debts, focusing on the highest to lowest APR. Some financial debt advisors prefer this approach to the snowball method, as it involves paying less overall in interest rates. If you have a significant amount of debt, the avalanche method may be the better option for you and can reduce the number of monthly payments you will need to make.

Pros and Cons Of A Debt Avalanche Approach

Using a debt avalanche method can save you money in terms of interest rate payments and time, but there are some considerations to make too. Using the debt avalanche method requires discipline in order to work towards paying off debts, rather than just paying the minimum amount. If you lose motivation towards paying off your debts, then this approach won’t work.

What Is The Debt Snowball Method?

The method for a debt snowball involves paying off the smaller value debts first, before gradually moving onto the bigger ones. This way, you can pay off smaller debts quickly, allowing you to focus on larger ones which may be causing you more concerns. With the snowball method, start by listing all of the debts which you owe in order of size, from smallest to biggest. Aim to pay off the lowest first, and then continue working through them, putting extra money towards them each month, and ensuring that the minimum amount is put towards your other debts.

Pros and Cons Of A Debt Snowball Approach

One of the biggest advantages of using the debt snowball method is that it can help to build motivation towards paying off your debts, as you’ll see faster results with debts being cleared. Compared to the avalanche method, you don’t need to look at interest rates or APRs, simply just focus on the amounts that are owed. One thing to consider is that the snowball method doesn’t reduce the amount you will need to pay in overall interest, whereas with the avalanche method, you will.

Which Method Is Best?

With the snowball method, you could, in theory, have one of your debts cleared in just a few months. The avalanche method, in comparison, could take over a year to pay off debts that have the highest interest rate. If you’re looking for quick wins, then the snowball method might be best, but if you want to avoid paying high interest rates, the avalanche method might be better suited.

However, these aren’t the only methods for managing debt. If you find that you can’t spare extra funds to pay off debts and can only better manage them, then things such as DROs or a debt management plan might be an alternative. It’s best to always discuss these methods with a financial advisor.