If you asked 10 different people how they were able to get out from under their debts as quickly as possible, you’d probably get 10 different answers.
This is because there truly is no one-size-fits-all approach to proper financial management. Every person’s situation is different, and the best method to pay down student loans might not work for credit cards, mortgages or any other type of debt you might be dealing with. But the good news is that it is entirely possible to free yourself from the burden (not to mention the stress) associated with your outstanding financial obligations. All it requires is for you to keep a few very important things in mind.
The Avalanche Method vs. the Snowball Method
When it comes to paying down your debt, there are two main options available for you to choose from, depending on your needs. These are the Avalanche Method and the Snowball Method ‒ two techniques that are similar in many ways but that also have a few unique qualities that are certainly worth a closer look.
The Snowball Method involves paying off your debts starting with the smallest balance, regardless of any interest rates that may be in play. So, if you have four credit cards with balances of $1,000, $2,500, $3,000 and $5,000, you would begin with the smallest balance and work your way forward in ascending order.
The benefit here is that you begin to clear away little debts relatively quickly, which can feel empowering for many people. That progress can generate its own momentum, and it can certainly help create the motivation needed to finally tackle your debt-related issues once and for all.
The Avalanche Method, on the other hand, will see you pay your debts from the highest interest rate to the lowest, regardless of the actual balance associated with those accounts. The benefit here is that you ultimately pay less interest if you focus your attention on your debts in this order, and you can use those savings to pay off your debts far faster than you may have otherwise been able to.
In addition to helping to quickly clear up debt, both techniques will have an almost instant positive impact on your credit score, along with other factors like your peace-of-mind. But again ‒ not every technique will work equally well for all people.
Depending on your income level and other financial obligations, the Avalanche Method in particular may not necessarily be feasible. But that’s perfectly okay, because you’ll quickly find another technique that is. Only once you take a careful look at your unique debt situation will you be able to determine which option is the most appropriate for you.
Getting Rid of Debt, One Payment at a Time
With regards to credit card debt in particular, one of the most important techniques you can use involves paying more than the minimum payment on each account whenever you have the opportunity to do so. Not only will this help you save an enormous amount of money on interest, but it will also dramatically speed up the payoff process at the exact same time. This works for student loans or even personal loans, too, but just make sure that your loan doesn’t charge any pre-payment penalties before you choose to pursue this method.
Likewise, don’t be afraid to contact credit card companies or loan providers to ask for lower interest rates to help make the process of paying off that debt even easier. A lot of people don’t realize that negotiating interest rates isn’t just common; it’s actually quite effective, particularly if you have a clear history of always paying your bills on time.
Finally, you may want to consider using balance transfers if you’re dealing with a lot of credit card debt in particular. If you have a solid credit history, you may be able to open a balance transfer credit card with a far lower interest rate than what you are currently paying. Not only does this allow you to again pay less money in interest over time, but it can also help support your efforts regarding techniques like the Avalanche Method, too. Yes, you’ll likely have to pay a balance transfer fee to begin the process, but it’s ultimately a small price to pay to create the type of relief you’ve sought for so long.
Questions about paying down your debt or any part of this article? Contact our office today.
Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.
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