How to Pay off Debt Fast — Pain in the Attic

I’ve always felt I’ve had a pretty good handle on our finances. We put money aside from each pay check and we put additional money towards our debts to get things paid off faster. But between our personal debt and our business debt, it adds up. Not all debt is bad-and all our business debt pays for itself, but its debt nonetheless. Until recently it never really occurred to me that there may be a better way to pay our debts. I started doing some research and found two general methods out there, the debt avalanche (also known as debt stacking) versus the debt snowball.

Both of these methods involve paying the minimum payment on every debt, except for one. In each method you will choose one debt to be your ‘focus debt’ that you will allocate more money towards each month. Once that debt is paid off, you roll that money into a new debt to expedite its payoff. The only difference between the debt snowball and the debt avalanche is the order in which you pay your debts. In the debt snowball method (the Dave Ramsey method) you pay off your lowest debt first. In the snow avalanche method, you pay off your highest interest debt first.

Dave Ramsey strongly promotes the debt snowball method and he has great points. The debt snowball method is a great way to clean up small debts and feel motivated along the way. Some people may have a lot of smaller debts such as doctor bills or credit cards that can be easily paid off in a couple month if extra money was allocated to them. This method is a great method to maintain momentum and motivation which is often lacking when trying to pay off debts. If you can physically see bills getting paid off every couple of months, you can see progress which keeps people engaged. Dave Ramsey argues that motivation can be the toughest part to becoming debt free, and that this method helps provide that and keeps people on track.

The debt avalanche is great to help you save a little money in the long run. By paying your highest interest debt first, you will pay less interest over the long haul thus saving you money. The downside to this method is that your highest interest debt could also be your largest debt. In that case, it could be a long time before you will have any pay offs. This can be discouraging to people and cause them to stop all together. One way to combat this would be to set up automatic payments, therefore you aren’t consciously making the payment every month so it won’t seem so bad.

Either way, both methods are great in aiding debt payoff. It really all comes down to the individual. During my research I stumbled across an example that showed the difference between the two payment methods for the same scenario and the differences were minimal.

In this example (below), the total debt is $54,000 and the total monthly minimum payment is $705. If the individual can pay $1,000 towards their total debt (including minimum payments) each scenario would look like this:

Using the avalanche method the individual will be debt free after five years and four months. They will pay $8,394 in interest
Using the snowball method the individual will be debt free after five years and five months. They will pay $9,378 in interest
The total difference between the two methods is one month and $985 over five years

$985 isn’t small change, but from a monthly perspective it equates to about $15. So yes the debt avalanche will save you a little bit of money over the long haul, but if you can’t stick to the plan it doesn’t do you any good. The gist of either plan is to limit additional debt and be consistent every month with whatever method you chose. Either method is going to help you pay off your debt faster and with less interest if you are consistent with it. As long as you’re lowering your debt that is all that matters, best of luck!

The example from this post was referenced from: https://www.moneyunder30.com/snowball-vs-avalanche