Say Goodbye: The Ultimate Guide to Deciding Your Debt Payoff Method
- Melissa Mittelstaedt
- May 22, 2023
- 5 min read
Updated: 4 days ago
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. I had to dig myself out of over $50k (that’s $78k in today’s dollars) after college. That experience is exactly what shaped how I think about debt payoff today. It's not a one-size-fits-all formula, but something that has to actually work for you, your brain, and your life.
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 which method matches your situation.
Before we dive in, one important framing note: Maybe you noticed me use the phrase "the debt you don't want" in the opening paragraph... that distinction was intentional. Not all debt is worth rushing to eliminate. A low-interest loan you're in no hurry to pay off while you focus on investing? That's a strategic choice—not a problem. So, as you read, think about which debts you actually want gone and let those be your focus.
Without further ado, let's explore my top three favorite debt elimination strategies: Debt Snowball, Debt Avalanche, and Debt Landslide. 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.
In words
Credit Card 1: Balance = $550
Personal Loan: Balance = $1,700
Credit Card 2: Balance = $5,600
Car Loan: Balance = $24,900
You'll pay the minimum balance to each at the very beginning, unless you have extra discretionary funds to apply. I'll cover what to do with those in a moment.
Once Credit Card 1 is paid off, the payments you were making on it will now be applied to the Personal Loan.
Once the Personal Loan gets paid off, the minimum payment + the extra you were applying to it, gets applied to Credit Card 2.
Rolling over the minimum payment is the critical step!
In numbers
Credit Card 1: Minimum Payment = $25
Personal Loan: Minimum Payment = $100
Credit Card 2: Minimum Payment = $225
Car Loan: Minimum Payment = $495
Once Credit Card 1 is paid off, the payments you were making on it will now be applied to the Personal Loan.
Credit Card 1: Minimum Payment = $25
Personal Loan: Minimum Payment = $125
Credit Card 2: Minimum Payment = $225
Car Loan: Minimum Payment = $495
This is what I mean by rolling over the minimum payment!
You continue in this fashion until all the debt is bye-bye.
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, your debt will be gone in 3 years and 8 months, cutting the payoff time in half.
Who is this approach best for?
Anyone who wants a quick psychological win (it's fun to cross out that completed debt)!
Anyone wants to dig up as little information as possible, since you only need the balance and minimum payment for each debt.
Debt Avalanche Method
This approach tackles debt based on the highest interest rate first.
Example
Credit Card 2: Has a 24% interest rate
Credit Card 1: Has a 19.99% interest rate
Personal Loan: Has a 10.25% interest rate
Car Loan: Has a 4.25% interest rate
Once Credit Card 2 is paid off, the minimum payment you were making on it is now 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 starting with 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.
Have Extra Cash?
This applies no matter which method you choose!
If you want to create an even faster timeline, allocate discretionary funds to your payoff. 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 number one debt, not $60 toward each.
Debt Payoff Timeline
If you read through each of those and thought... "The timelines weren't all that different, Melissa." I would tell you that's true. The variances increase as the debt totals increase. But the critical point to make is, understanding what option is the most exciting to your BRAIN!
If your brain is on board, then you're more likely to make progress.
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.
The "best" method isn't the one that saves the most on paper... it's the one you'll stick with!
Knowing which method fits you is step one. Knowing how it fits into your full financial picture is where things really get juicy. If you're ready to go deeper, join me in my "Getting Comfy with Money" newsletter where we hold nothing back. We chat mindset, strategy, and what it looks like to have a relationship with money that feels good!
Melissa Mittelstaedt
Financial Consultant | Accredited Financial Counselor®
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