The Two Most Effective, Simple Ways to Attack Debt

Debt is one thing which you don’t like to keep for long. It is always better to have a debt-free life to obtain financial freedom.

You will be shocked at the number of immediate benefits of a debt-free life whether that is an increased credit score, more time on your hands, increased travel opportunities and more.

I will highlight the two simple, effective methods to get rid of your debt.

You can pay off your debt in a variety of ways (to each is own) but according to researchers, there are two types of distinct effective methods of debt management. These methods are the Avalanche Method and the Snowball method. Both are useful methods but depending on your personal choice and situation, you need to find the way which suits you best.

Effective Ways to Pay off Debt

1) Debt Snowball Method

In this method, you pay the debt according to their size and not by their interest rate.

You pay the smaller debt first which will give you a morale boost and help you stick to the plan and then pay off the higher debt.

The major advantage of this method is that you get to build up the motivation to repay your debts while on the downside you potentially end up paying more in interest.

According to Dave Ramsey, who created the snowball method, “Debt repayment is more about behavior than knowledge”.

Debt repayment is not easy to get excited about and one cannot easily put extra money in debt repayment without achieving any results. As per general human behavior, it is found that we need to get some quick wins in order to stay motivated to pay off the debt completely.

This method guarantees instant success and will always make sure you hit your installments on time.

Snowball Method Pros

  • Send of accomplishment as you pay down your balance
  • High history of success
  • Free up additional funds that can be used for investments

Snowball Method Cons

  • You end up taking more time to pay off your debt
  • You will pay more interest than the snowball method

 2) Debt Avalanche Method

In the Avalanche method, you first pay off the debt with the higher rate of interest and then pay off the debts in descending order of interest rates.

The major advantage of this method is that you end up paying less interest and saving up more money for you.

According to Personal Finance strategies, avalanche method is the best which it is financially optimum.

For example, you have the following situation of debts:

  • $10,000 Credit Card, Interest rate 18%
  • $5,000 Car Loan, Interest rate 9%

In Avalanche method, you will pay off your credit card first and then start the car loan, saving a lot of interest in the process.

While in the Snowball Method, you will be paying off the car loan first and stay motivated to pay off the credit card.

This is my favorite method on how to get rid of your debt in 18 months or less.

Debt Avalanche Method Pros

  • You save money on interest (probably most important)
  • You pay off your loans faster

Debt Avalanche Method Cons

  • It is hard to stay motivated as you feel like you are climbing through an avalanche!

Both the methods have their own pros and cons as indicated above.

You should choose the one which suits best to you. You can start with snowball method and then switch to avalanche method when you have enough motivation developed to pay off your debts effectively.

This is something that I commonly achieved when I paid off over $50,000 in student loans in 24 months.

Whichever method you choose, make sure to make your payments on time.

Most importantly, generate extra sources of income to put towards your debt repayment. I’ve found several forms of passive income that I use to reinvest (and live debt-free!) into other assets that also provide passive income.

Remember, compounding interest is your friend and you don’t want to be the one paying compound interest to another person (being a debtor).

Now what are you waiting for? Get out there and pay off your debt!

Money Journey

Money Journey


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