Are you tired of feeling overwhelmed by unwanted debt? Do you feel like you're stuck in a never-ending cycle of payments and interest charges? Trust me; I know the feeling. It can be tough to get a handle on your finances, especially when you're dealing with debt repayment. But don't worry; you've come to the right place.
Welcome to "Say Goodbye to Debt: The Ultimate Guide to Conquering the Debt You Don't Want ." In this guide, I will give you the tools and strategies to finally break free from the debt you don't want.
Everyone's financial situation is unique, which is why I'm touching on multiple strategies for tackling debt. Whether you're dealing with credit card debt, student loans, or other types of debt, this info will help you decide what method matches your situation.
I also want to quickly touch on why I'm saying "the debt you don't want" versus all debt. Sometimes we have obligations we're not rushing to get rid of. It could be a low-interest item, and you're focusing on investing money instead of paying that one down. So, when outlining each of your debts, select the ones you want to eliminate, then apply the below methods.
Without further ado, let's dive deep into my top three favorite debt elimination strategies: Debt Snowball, Debt Avalanche, and Debt Landslide. So, grab a pen and paper, take some notes, and let's get started!
Pieces of Information You May Need
For each debt (depending on the method you choose), you may need to gather the following:
Total balance
Interest rate
Minimum payment due each month
Date of debt origination
Sample Debts
Personal Loan: Balance = $1,700 with 10.25% interest
Credit Card 1: Balance = $550 with 19.99% interest
Car Loan: Balance = $24,900 with 4.25% interest
Credit Card 2: Balance = $5,600 with 24% interest
Debt Snowball Method
This approach tackles debt based on your smallest amount.
Example
Credit Card 1: Balance = $550
Personal Loan: Balance = $1,700
Credit Card 2: Balance = $5,600
Car Loan: Balance = $24,900
Once Credit Card 1 gets paid off, what you were paying towards it now gets applied to the Personal Loan.
Rolling over the minimum payment is the critical step!
Length of Debt Payoff
If you only paid the minimum balances due each month, the payoff would take 7.5 years.
Using the Debt Snowball Method, the debt will be gone in 3 years and 8 months, cutting your payoff time in half.
Who is this approach best for?
Anyone who wants a quick psychological win & wants to dig up the least amount of information since you only need the balance and minimum payments for each debt.
Debt Avalanche Method
This approach tackles debt based on the highest interest first.
Example
Credit Card 2: Balance = $5,600 with 24% interest
Credit Card 1: Balance = $550 with 19.99% interest
Personal Loan: Balance = $1,700 with 10.25% interest
Car Loan: Balance = $24,900 with 4.25% interest
Once Credit Card 2 gets paid off, what you were paying towards it now gets applied to Credit Card 1.
Rolling over the minimum payment is the critical step!
Length of Debt Payoff
If you only paid the minimum balances due each month, the payoff would take 7.5 years and pay $10,523 in interest.
Using the Debt Avalanche Method, the debt will be gone in 3 years and 8 months, cutting your payoff time in half, and you will only pay $3,886 in interest.
Who is this approach best for?
Anyone who wants the most interest savings & how long it takes to pay off the first debt isn't a driving factor.
Debt Landslide Method
This approach tackles debt based on the newest debt first.
Example
Originated 6 months ago: Car Loan
Originated 2 years ago: Credit Card 2
Originated 3 years ago: Credit Card 1
Originated 5 years ago: Personal Loan
Once the Car Loan gets paid off, what you were paying towards it now gets applied to Credit Card 2.
Rolling over the minimum payment is the critical step!
Length of Debt Payoff
If you only paid the minimum balances due each month, the payoff would take 7.5 years.
Using the Debt Landslide Method, the debt will be gone in 3 years and 11 months, cutting your payoff time nearly in half.
Who is this approach best for?
Anyone looking to get an extra boost on their FICO credit score. Credit scores weigh heavier on new activity, so clearing some of that out first can give you a slight advantage in raising your score.
Above and Beyond
You can allocate extra funds to your payoff if you want to create an even speedier timeline. For the process to work as fast as possible, put any additional funds toward ONE debt, not a little bit to each.
Example: If you have an extra $240 one month, put it all toward your #1 debt, not $60 toward each.
The Bottom Line
As you can see, the fundamentals of the payoff methods are similar...
Rank the debts; once you pay one off, apply that minimum to the next in line.
The difference comes in which method speaks to you. Do you prefer quick wins? Go with the Snowball. Do you prefer to save the most in interest? Go with the Avalanche. Do you prefer the fastest jolt to your credit score? Go with the Landslide.
Now go on out there and do your thing!
Here's to you,
Melissa Mittelstaedt
Money Coach | Accredited Financial Counselor®