Snowball? Avalanche? What'€™s the Best Way to Pay Off Debt?
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The Avalanche Method

In this repayment strategy, most often recommended by financial experts, interest rates take priority. List balances from the highest interest rate to lowest, disregarding all other factors. Your goal is to make minimum payments on all of them, while funneling extra cash to the debt with the highest rate. Once you’ve paid that off, extra money shifts to the one with the second-highest interest rate, and so on.

Pros: By paying off the highest-interest balances first, you save yourself more money in the long run. The avalanche method helps you get out of debt faster too: Since high rates increase your balance, and paying them off means you’re saving more, this indirectly means you’ll spend less time paying debt.

Cons: If your highest rate debt also happens to have a high balance, you may go quite awhile without the psychological boost that comes with paying a loan in full, which may make it tougher to stay motivated  to keep chugging along.

Who it works best for: This plan is perfect for people who want to save as much as possible and don’t need the positive reinforcement that comes from knocking out loans to stay on track. “Just make sure you celebrate little milestones, such as paying off every $1,000 of a $10,000 loan, to keep yourself motivated,” Euretig says.

The Subsidy-Focused Method

This method is only for borrowers with federally backed student loans.

Federal loans are special in that, under certain circumstances like job loss, they can be placed into a period of deferment, during which timely payments do not need to be made. Federal student loans come in two flavors: subsidized and unsubsidized. Subsidized loans have unique benefits that unsubsidized loans do not—namely that they do not accrue interest while deferred.

To follow this method, separate your loans into two groups, subsidized and unsubsidized, disregarding both loan balances and interest rates. Make minimum payments on all loans, but prioritize unsubsidized loans, using your choice of the snowball or avalanche method. Once your unsubsidized loans are paid off, focus on the subsidized.

Pros: If you have to defer unsubsidized loans due to a financial emergency, interest will continue to accrue. And if you can’t afford to pay it post-deferment, it may be added to your principal.

Alternatively, paying off unsubsidized loans first means you can rest easy that if you find yourself in a rocky financial situation, your subsidized loans won’t gain interest in deferment and wipe out the progress you’ve made.

Cons: Because this is a hybrid method, you probably won’t fully reap the benefits of the snowball or avalanche method. That is, you won’t necessarily save the most money possible or enjoy the most psychological wins.

Who it works best for: This plan values stability over saving as much money or paying off as many loans as possible in the shortest amount of time. If you have federal student loans, find yourself in an unstable company or industry and don’t have extensive emergency savings, this method may be for you.

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