pay off debt quicker with one of these methods

Debt is not an easy thing to be in. Many people set themselves a target to pay off debt as soon as they can. This is a great target to set however how do you go about this?

There are two main ways to look at repaying debt quicker. Both methods have funny names – Snowball and Avalanche. Depending on your personality you will naturally pick one over the other without even thinking about it.

Below I will explain what both methods are and which of the two makes more sense in my view if you are trying to cleat your debt as soon as possible.

I have also written a separate article on tool that can help you reduce your interest and find ways to have more cash to pay off debt quicker. You can read the full article here.

first step to pay off debt quicker

Before we even start looking into different methods of how to repay debt – the following is a must! You have to stick with the minimum repayments each of your debts requires. 

If the above is true and you have some spare cash left every month – we can start looking into how to speed the debt repayment process.

Moving all of your money into one debt and not paying the rest of the debts can be a costly error. 

Firstly, this will definitely hurt your credit score and leave a black mark on your credit report. Secondly, most lenders will charge crazy fees in cases when you miss your monthly minimum payments.

Below methods are only good for the cases when you have some spare cash left each month and you want to become debt free as soon as possible.

snowball method

I am going to start with the snowball debt clearing method. It assumes that you will be putting the spare cash towards the debt with the smallest physical amount remaining. Obviously, this is after you have made all the minimal required payments in the first place.

What this does in simple terms – it helps you mentally by getting the number of debts reduced as quickly as possible. This can help you with your motivation to stick with repaying the debt for much longer.

The above is true due to the fact that you will quickly start seeing that there are less lenders on the list whom you own money to. This will become the key driving force for you to continue with paying off the debt.

If you look at the above example – you would start with putting the extra money towards Car Finance. Since this is the smallest debt you have – you would clear it the quickest. You would be soon left with only Credit Card and Personal Loan.

The snowball method would then suggest you start putting extra cash towards paying off your Personal Loan since this will be the second smallest debt.

avalanche method

Avalanche method on the other hand looks at repaying the debt with the highest interest first. This method suggest ignoring the balance left on each debt and tackling the most expensive debt to start with.

If we use the example above – you would start with putting the extra cash towards your Credit Card debt. Since credit card in the above scenario is charging you 18% annually – this is your most expensive debt. In the example above – this is way above the Personal Loan and Car Finance.

Your extra monthly payments will take longer to actually clear Credit Card debt compared to Car Finance. This will result in you having 3 separate debts for the longest period of time. The massive advantage here though – the debt that adds the most interest monthly will be cleared the quickest.

What this actually does – it reduces the number of months it would take you to clear all of your debts. The downside here unfortunately is – you won’t gain a mental benefit of seeing the number of debts reduced as early as you would with Snowball method. You can use the monthly interest that you have to pay as a motivation here.

Clearing your debt with Avalanche method would reduce the total number of months it would take for you to become debt free. The Snowball method would probably add extra couple of months to you clearing your overall debt.

The above sentence is only true if you stick with your monthly minimum payments & continuously keep repaying the most expensive debt you have. If your consistency with Avalanche method wouldn’t be as good as the one with Snowball method – the opposite might actually be true.

my preferred method to pay off debt the quickest

When it comes to comparing both of the above methods – my preference is Avalanche method. The reason for this is simple – it makes the most financial sense to follow this method. You paying off the most expensive debt first reduces the amount of total interest you would have to pay over time.

The less interest you have to pay, the less money you waste. This interest payment saving can then be used to invest. This would allow you to start making money while you sleep. The alternative to this – treat yourself to a nice holiday after clearing all your debts. Make sure you don’t use credit card for this though.

There is a big HOWEVER here though. The Avalanche method is quicker only if you have a lot of self discipline. If that isn’t the case and you lose motivation and stop contributing extra towards your debts as you don’t see the physical number of these being reduced quickly enough – then Snowball method might be quicker for you personally.

summary

Debt is something that most of us would love to avoid in our lives. If you do end up in a situation where you are in debt – finding a way out of it is the key.

The first step is to make sure you are able to stick with the minimum required payments. This is a key to make sure your credit score doesn’t get hurt more than it has to already. You will also avoid paying excessive fees!

Next, use any spare cash you can afford to clear your debts sooner rather than later. There are two different methods – Avalanche and Snowball. Each of these works the best depending on the type of person you are. 

Find the one that makes the most sense to you and stick with it. Either of the methods is a step up on you not trying to climb out of the debt trap.

One other thing to keep in mind – you shouldn’t be silent about debt. If you find yourself in a situation where you can’t see a way out – reach out and ask for help. There are many individuals who can help. Also, there are some organisations and charities for you to leverage. One example of this can be found here.