Most "expert" advice on paying down debt is about as useful as a bumper sticker that says, "Don't Worry, Be Happy."
Sometimes, you need to worry to get the motivation to take the action you need to get happy.
While I'm not opposed to a little motivational kick now and again, debt is a heavy thing, and platitudes don't pay the interest on that sucker. To crush debt out of your life once and for all, you need to take real action with actual results. If you don't, and hope wishing it away will do the trick, you will be sorely disappointed.
I don't want you to feel disappointed; I want you to feel energised and empowered. I want tangible actions I can take today to start digging myself out of the all-consuming Avalanche of bills.
Debt is heavy.
It weighs you down and keeps you awake at night; I know because I've been there. And despite what the gurus claim, there's no "abundance mindset" magic wand you can wave to make it disappear.
You simply have to roll up your sleeves and get to work.
You deserve more.
Here's the great thing: I believe in you.
I know you have BIG dreams. Helping people like you get out of their way and figure out money is my favourite hobby and my life's work. And trust me, no matter where you're starting from, if you're willing to draw a line in the sand and take action, you can create money miracles in your life.
Set the right foundation and create a plan to crush any debt you might have. But before we start, remember this. There is no right or wrong way to overpay on debt. The main thing is that you do.
Here are the two most popular methods for attacking debt:
The Avalanche Method
The "Avalanche Method" favours knocking out high-interest loans first to minimise overall interest paid. It is pragmatic and numbers-driven, like an avalanche starting high and gathering momentum as it works its way down.
Here's how the Avalanche works:
List all debts with details, interest rate ideally (APR), term lender, etc.
Order debts high to low by interest rate.
Pay extra on the highest interest debt; minimums on the rest.
Eliminate that top debt.
Then, take the whole payment that used to go on the top debt and add it to the minimum payment on the next.
Do not take your foot off the pedal, and do not spend any of the repayment money on general spending until you are debt-free. You are living without it now just fine; keep it like that, and you will be so thankful in a debt-free future.
Repeat.
Upside: The big advantage to this method is that you pay less interest on any money owed overall because you take the highest interest rates first and blow them out of the water. It helps you become debt-free faster compared to paying off debts randomly.
Downside: Progress may feel slow if the highest-interest debt is large, potentially demotivating as it can take time to see results.
The Snow Ball Method
The "Snowball Method" favours knocking out smaller loans first for those motivation boosts. Like a snowball starting with small balances and gathering momentum as you work your way up to the bigger balances
Here's how the Snowball works:
List all debts with details, interest rate ideally (APR), term lender, etc.
Sort debts by balance, smallest to largest.
Put extra cash towards the smallest debt; minimums on others.
Pay off the smallest debt, then take the whole payment used to pay off the smallest debt and add it to the minimum payment on the next smallest.
Just like the Avalanche method. Do not take your foot off the pedal, and do not let any of the repayment money into general spending until you are debt-free.
Keep it like that, and you will be so thankful in a debt-free future.
Upside: Clearing smaller debts first offers quick wins for motivation. This method has a real feel-good factor and keeps motivation high. It simplifies the debt payoff process and helps create momentum as you see debts being eliminated one by one.
Downside: Could be costlier if high-interest debts linger longer. It may not be the most cost-effective method for minimising overall interest payments.
Which method is better?
The honest answer is neither. As I mentioned earlier, the best method is the method that works for you.
However, if I were to choose, I'd be more of a Snowball gal myself.
Sure, I may pay more in interest by prioritising quick wins over pure math. But can you really put a price tag on that dopamine hit of demolishing an entire debt?! With each balance you bulldoze, the momentum builds. You start moving quicker, getting scrappier, throwing more at those remaining debts.
Before you know it, big loans no longer seem so impossible. You've got a freakin' avalanche of your own now!
This feeling of winning is like rocket fuel for your drive to financial freedom. Gone are the days of derailment and despair to become the driver of your future.
Final thoughts
Avalanche, snowball, snowball avalanche. The "best" strategy is the one you stick with. So play to your strengths and trust your instincts; choose the one that makes more sense and run with it.
Kel 'create your own avalanche' Galavan