Snowball? Avalanche? What's the Best Way to Pay Off Debt?
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Paying off debt can be challenging, not to mention exhausting. When you’re staring down several loans with varying interest rates and amounts owed, it’s difficult to know where to begin.

Fortunately, getting started—or optimizing your efforts, even after you’ve been paying down debt for awhile—isn’t as hard as it sounds. The first step is to settle on a repayment strategy that’s based not just on your finances, but your personal motivators and goals, too.

Need some help selecting the best method for you? Here are the pros and cons of two repayment strategies you can use for student loans, credit card balances and other debt—plus one that’s specific to student debt.


The Snowball Method

This works just as well for credit cards as student loans. To get started, list your loans according to the balance owed, disregarding interest rates. Your goal is to make minimum payments on all loans, while funneling extra cash to the lowest balance.

Once you’ve got that paid off, the magic—or snowball effect—begins: Money you’ve put toward the first loan shifts to the second-lowest balance. When you’ve zeroed out that loan, apply the money from the first two loans to the next-lowest balance.

Pros: Research shows that small wins—in this case, quickly knocking out smaller loans—can increase your motivation and endurance to keep racing toward the finish line. It can also simplify your finances: As you pay off each loan, you’ll have one less bill to worry about each month, says Certified Financial Planner Gary Silverman, founder of Personal Money Planning in Wichita Falls, Texas.

Cons: From a pure-numbers standpoint, the snowball method isn’t as efficient as the avalanche method (below) because your lowest balances aren’t necessarily tied to the lowest interest rates. That means you could be paying more over time by not hacking away at the highest-interest debt first.

Who it works best for: If you’re overwhelmed and experiencing debt fatigue, this method is likely to give you a mental boost and can motivate you to pay off smaller balances faster, says Kristen Euretig, a Certified Financial Planner and founder of Brooklyn Plans.

September 6, 2016

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