If you keep stacking payments together until the snowball gets large enough to knock out all of your debt, you have successfully stopped drowning!<\/p>\n\n\n\n

This strategy is great because it gives you a win early but you are not minimizing the amount of interest you are paying with this strategy. <\/p>\n\n\n\n

Debt Avalanche: <\/h2>\n\n\n\n

Let’s look at the same scenario as above and see how the debt avalanche would work to stop us from drowning. It still starts with listing all debts out with their payment and interest rate information, but now we are going after the highest interest rate instead and don’t care about the balances. Our first-month payment structure would like<\/p>\n\n\n\n

• $10,000 credit card debt at an interest rate of 18%, payment of $430<\/li>
• $2,000 car loan at an interest rate of 3% with a minimum payment of $75<\/li>
• $20,000 student loan at an interest rate of 5% with a minimum payment of $425.<\/li>
• $3,500 personal loan at an interest rate of 10% with a minimum payment of $70<\/li><\/ul>\n\n\n\n

  After the credit card has been paid off, we would apply the $430 to the personal loan because it has the second-highest interest rate. The example payout structure is listed below:<\/p>\n\n\n\n

  • $2,000 car loan at an interest rate of 3% with a minimum payment of $75<\/li>
  • $20,000 student loan at an interest rate of 5% with a minimum payment of $425.<\/li>
  • $3,500 personal loan at an interest rate of 10% with a minimum payment of $500<\/li><\/ul>\n\n\n\n

    As you can see, this method reduces the amount of interest you pay over the long term by eliminating the highest interest payment first regardless of balance. <\/p>\n\n\n\n

    Summary:<\/h2>\n\n\n\n

    When you are drowning in debt, it can feel very scary but it is up to us to get out of the water. Ultimately both of these strategies work, and I recommend whatever system you feel more comfortable with. I often tell people to use a hybrid approach and combine the methods. I think the psychology of winning is critical in making a change. The debt snowball lets you see progress even though you are not minimizing interest payments. But, who cares! When getting out of debt, the most important thing is making and following a plan to get out of it! But if you are disciplined and stick to it, your wallet will thank you for following through with the debt avalanche. <\/p>\n\n\n\n

    As always, you have so many options available to you. <\/a>The most crucial step is always the next one. You got this! <\/p>\n","protected":false},"excerpt":{"rendered":"

    If we know debt is scary, why do so many of us find ourselves in positions of…<\/p>\n","protected":false},"author":1,"featured_media":225,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","om_disable_all_campaigns":false,"WB4WB4WP_MODE":"","WB4WP_PAGE_SCRIPTS":"","WB4WP_PAGE_STYLES":"","WB4WP_PAGE_FONTS":"","WB4WP_PAGE_HEADER":"","WB4WP_PAGE_FOOTER":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22,32,38],"tags":[46,45],"yoast_head":"\n