Does watching your debt snowball out of control give you anxiety? Not sure how to even begin approaching debt reduction?
A study on debt and depression found that 29% of people with high debt have severe anxiety. That’s why posts like this exist. By having a concrete payment strategy in place and tracking your progress you can ease your worry as you watch the amounts steadily go down.
The two main debt reduction strategies are the Avalanche Method and the Snowball Method. Both strategies require you to make minimum payments on all your debts, but the difference is in where you focus the bulk of your monthly debt contributions.
The avalanche method of debt reduction is to focus all your repayment efforts on the debt with the highest interest rate. Though this means your smaller debts are neglected, this method actually saves you more money than focusing on small debts first.
Here’s an example on how that works:
Here we are comparing two credit cards that have a $4,000 balance and assuming we are not spending more on either card. If you are only paying the minimum each month of $140, here’s how long it will take and how much interest you’ll pay:
- $4,000 at 6%: 32 months and $323.47 in interest
- $4,000 at 18%: 39 months and $1250.14 in interest
Not only does the higher interest rate account take longer to pay off, but you pay way more in interest over the long run!
Once you finishing paying off the debt with the highest interest, move on to the debt with the next highest interest until you are debt free.
If you can stick to the Avalanche Method, this is the most effective way to get out of debt.
The snowball method of debt reduction is the opposite to the avalanche method in that you focus on the small debts first. The idea is to focus on reducing the overall number of debts.
As already mentioned above, this method will actually cost you more money in the long run. So why choose this method?
If you want to see tangible progress fast!
You need to be in the right mindset to get out of debt. Using the Avalanche Method can take a while to eliminate your biggest debt, and having all your debts continuing to grow can give you heart palpitations. The snowball method is for people who want the motivation boost that comes from closing easy accounts first and then working to the harder ones.
What’s The Best Way To Get Out of Debt?
There is no right answer as to which method you should choose to reduce your debt, it really depends on which one you are most likely to stick to.
If you are fine with managing minimum payments on multiple debts over a longer period, choose the Avalanche Method.
If you would rather get rid of smaller debts first so you can focus all of your efforts on the larger ones, choose the Snowball Method.
If you want to hire an expert to help you manage your debts and help dispute negative marks on your credit rating, reach out to us at RepairCreditQuick. We’ll provide you with a free credit consultation and expert advice on how to get out of debt as quickly as possible.
Be sure to leverage all the resources at your disposal to get out of debt so you can reach a place of financial security.