Whether you have debts piling up due to credit cards, medical bills, student loans, or another type of debt, paying them all off might seem like an impossible task. You want to keep your monthly payments manageable, but you also don't want high-interest rates to continue racking up your balance. When you're looking at strategies for paying off multiple debts, consider two popular options: the avalanche method and the snowball method.
The avalanche method gets its name from the natural phenomenon of huge piles of snow cascading down a mountain. With this strategy for paying off debt, you focus on your debt with the highest interest rate. Even if the balance is low, the high interest means that the amount still adds up fast. Pay the minimum toward each of your debts and then put any extra funds toward this balance every month until the debt is paid off. Then, focus on the debt with the next-highest interest rate and work your way down, leaving the debts with the smallest interest rates for last. The idea is that when you tackle your biggest interest rates first, you'll make the most difference in reducing your overall debt load because you'll avoid hundreds or even thousands of dollars in interest.
The snowball method is the opposite, named for the process of rolling a small ball of snow in more snow until it grows bigger. With this strategy, you devote any extra funds to paying off your debt with the smallest balance first. Even if the interest rate is low, you'll get a boost of confidence every time you pay off a debt, so it's recommended to start with the easiest to repay first. Then, move on to the next-smallest balance and keep going. You'll be able to stay motivated to pay down your balances and make a difference in the overall debt that you owe. If paying off your debt seems overwhelming, the snowball method can help you build confidence in your ability to manage your money and get control of your finances.
A Third Option: Debt Consolidation
If you have many different kinds of debt to tackle or many different accounts, all with various interest rates, it may add even more stress to figure out which balances to focus on paying down each month. A third strategy for paying down your many balances is consolidating all your debt. With debt consolidation, you'll only have to make one payment each month, which may simplify things for you and make it easier to focus on managing your budget.
A debt consolidation attorney can help you evaluate your situation and decide if this strategy would be beneficial in paying off your debts. Contact services like Brian R. Cahn & Associates, LLC to learn more.Share