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You may have heard about the debt avalanche method of becoming debt-free. It’s a popular method that has been gaining much traction recently, and for good reasons.
The debt avalanche method is a great way to become debt-free quickly and efficiently.
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What is the debt avalanche method?
The debt avalanche method is a way of becoming debt-free by first paying off your debts with the highest interest rates. This method is effective because you will save a lot of money in interest charges by paying off your debts with the highest interest rates first.
For example, let’s say that you have two debts. One debt has an interest rate of 10%, and the other has an interest rate of 5%.
If you focused on paying off the debt with the 10% interest rate first, you would save a lot of money in interest charges.
Debt Avalanche vs. Debt Snowball
Now that you know what debt avalanche is, you’re probably wondering how it differs from the debt snowball method.
The most significant difference between these two methods is how you pay off your debts.
With the debt snowball method, you first focus on paying off your smallest debts. This method is effective because it gives you a sense of accomplishment as you see your debt balances shrinking quickly.
With the debt avalanche method, you first focus on paying off your debts with the highest interest rates. This method is effective because you save much money on interest charges.
We were able to pay off $56,000 in student loans using the Debt Snowball Method. I created another article explaining further everything you need to know about The Debt Snowbal Method.
Which method is right for you?
The answer to this question will depend much on your personal preference.
If you want to see quick results with a lot of momentum, the debt snowball method may be right for you.
On the other hand, the debt avalanche method is probably a better option if you’re looking to save money in the long run and depending on the interest rate of your debt accounts.
Here are some of the pros and cons of both the debt snowball method and the debt avalanche method:
Debt Snowball Method Pros & Cons
Pros
- You see results quickly
- You stay motivated as you see your debt balances shrinking (momentum builds quickly)
Cons
- You may end up paying more in interest charges overall
- You may get discouraged if you have a large debt balance
Debt Avalanche Method Pros & Cons
Pros
- You save money in interest charges overall
- You’re more likely to stick with the plan because you see results quickly
Cons
- You may get discouraged if you have a large debt balance
- You may have to make some lifestyle changes to stick to the plan
As you can see, there are pros and cons to the debt snowball method and the debt avalanche method.
Helpful tips to make the debt avalanche easier
1. List all your debts, from the highest interest rate to the lowest.
You must go over your debts with a fine-toothed comb to ensure you include everything. This includes debts like credit cards, student loans, car loans, and any other type of debt you may have.
2. Make and keep a monthly budget.
Making a budget is an essential step in becoming debt-free. First, you need to know exactly how much money you have coming in and going out each month. This will help you make informed decisions about where your money should go each month.
3. Get to know the interest rates of all your debts.
Interest rates are essential to the debt avalanche method. The whole point of this method is to save money by paying off your debts with the highest interest rates first.
4. Make a plan and stick to it.
You must make a solid plan before paying off your debts. This plan should include how much money you will put toward your monthly debts and which debts you will focus on first.
5. Stay disciplined; you’ve got this!
The debt avalanche method requires a lot of discipline.
Once you start paying off your debts, you must stay focused and continue making monthly payments. Otherwise, you’ll end up right back where you started.
Is the Debt avalanche method right for you?
There’s no right or wrong answer to this question. It all depends on your personal preferences and situation.
A debt avalanche method is a good option if you want to save money in the long run. However, if you want to see results quickly, the debt snowball method may be better for you.
Deciding to become debt-free is a big step. Whatever method you choose, the most important thing is that you stick with it and don’t give up. With perseverance and dedication, you can achieve anything.
The most important financial decision that you’ll ever make is the decision to become debt-free.
Once you’re debt-free, you’ll have much more money to save and invest. That’s the moment when your financial future starts to look bright.
No matter which method you choose, becoming debt-free is an attainable goal.
It may take some time and effort, but it’s worth it in the end. So don’t wait any longer; plan and start working towards debt-free today.
There are many free resources I’ve created to help you gain control of your finances! Check them out today at Biesinger FIRE Journey Freebies!
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
