There’s No Wrong Way to Pay off Debt

There's no wrong way to pay off debtOne of Grayson’s big desires for Debt Roundup is that the site helps people learn how to pay off debt.  There are a vast number of resources on the whos/hows/whats/wheres and why’s of paying off debt here at Debt Roundup and elsewhere on the Internet.  Within the world of personal finance blogs, you’ll often find differing thoughts and opinions on the best method of paying off debt.  Grayson shares how well the Debt Avalanche worked for him, while others share their successes with the Debt Snowball.  Then there’s those in between, like me.  We used the Debt Avalanche for the first two years of our debt payoff, but as of January 1st of this year, we’ve switched to the Debt Snowball.  Sometime it’s hard to know which way to go and which methods to use when paying off debt.  Today I’m going to go over some of the basic “why’s” behind the different methods you can use to pay off debt, as well as sharing the most important aspect of debt payoff.

Not sure which debt repayment system to use? Here's the most important part of paying off debt! Click To Tweet

The Debt Avalanche

This is by far Grayson’s favorite method of debt payoff.  It worked well for him and it’s worked well for countless others.  Paying off debt by using the Debt Avalanche means listing your debts according to interest rate, the highest rate being at the top of the list, and paying the debts off starting with the highest interest rate credit card or loan, working your way down to the lowest rate card or loan.

One of the reasons Grayson loves this method of paying off debt is because it’s the method that will save debtslayers the most money.  If you’re looking at sheer numbers, from a math perspective the Debt Avalanche makes the most sense.  You’ll get out of debt sooner and save more money on interest by paying off debt.  The Debt Avalanche takes the emotion out of debt payoff, and gets you debt free quicker and cheaper.

Grayson’s note: The avalanche method still involves emotions as you have to stay motivated during the payoff period. It’s long for many, so creating milestones to keep your emotions in check is the way to go. This is especially true if you have large balances with high interest rates like I did.

The Debt Snowball

The Debt Snowball method of paying off debt involves listing your debts in order of lowest to highest balance.  You pay off the lowest balance card or loan first, and then move on to the next lowest card, taking that minimum payment from the first card and applying it as an additional payment toward the second card.  You then continue snowballing the payments as you pay off more and more loans.

The Debt Snowball, from a numbers perspective, is going to cost you more money, however the snowball method works for a large number of borrowers because of the added incentive people often get to keep paying off debt when those smaller loans and cards get paid off.

This is why my husband and I chose to switch to the Debt Snowball.  We started with a LARGE amount of debt, and although we did payoff debt during our first two years on the Debt Avalanche, the overall numbers were still big, and we were starting to get discouraged big time.  Out of fear we might give up altogether on paying off our debt, we switched to the snowball, focusing on only one debt at a time (the smallest), and making minimums on the rest.  Aside from making the minimum payments, though, we chose to put those other debts “out of sight, out of mind”.  By using this method, we are finding that we’re more motivated, more encouraged and that we’re spending less and paying off debt faster.  Although we are likely paying more interest in the long-run, the risk of going AWOL on our debt payoff plan was too big for us, and we needed to do something to change our plan that would help ensure we stay on track.  The Debt Snowball was it, and it’s working.

Related: You CAN pay off debt and save money at the same time!

Debt Consolidation

Debt consolidation is also an option for getting debt paid off.  By consolidating your loans and cards into one single loan with one single payment each month, the focus to become debt free stays strong, knowing that once that one loan is gone, you’re done and debt free.  Debt consolidation, however, comes with a risk: the risk to start using those credit cards that you paid off by consolidating everything.  If you haven’t changed your mindset and resolved to get and stay debt free, the debt consolidation method of paying off debt can easily lead to more debt, not less, if you start using those credit cards again without a plan to pay them off each month.  Many a debt free person, my husband and I included, have reached debt freedom, only to be back in debt again because we hadn’t changed our mindset about having debt.  If you’re still struggling with temptation to use credit cards, the debt consolidation plan probably isn’t for you.

The Take Away

The most important aspect of debt payoff, however, isn’t which method you choose to pay off your debt.  It’s that you do indeed pay it off and don’t go back into debt.  Try one plan, try all of the plans: just make sure you keep doing what you need to do and working your debt payoff plan (or plans) until debt freedom becomes a reality.  Reaching debt freedom, whichever plan you use, means you have indeed succeeded at your plan, and the Debt Roundup team is here for you, every step of the way.

Which debt payoff plan worked or is working for you?  How has your debt mindset changed in recent years?

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About the Author Laurie

Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.

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Leave a Comment:

Wise Dollar says February 4

Good points Laurie! At the end it just matters that you get that debt killed and as long as it’s legal I say go for whatever method works for you. When I was paying off debt I started with the Snowball and moved to the Avalanche after a year or so. It worked out well in the beginning as I paid off the lowest balance card but the math was too convincing and moved to the Avalanche to kill it for good.

    Laurie Frugalfarmer says February 4

    This is what I’m talking about, John! You started with one method, things changed (your mindset) so you went with a different plan which would help you get your debt paid off sooner. And you did!! Great work, my friend. 🙂

Grayson Bell
Grayson Bell says February 4

You nailed this one Laurie! The funny thing is a reader submitted a question just about this last night and I just approved it. I will send them here to help explain the differences and show them it doesn’t matter, just pick one!

Mike says February 4

Getting out of debt is like losing weight. There are a variety of exercises you can do to burn calories. It doesnt really matter what exercise you choose as long as you do it regularly. Those small reductions (whether calories or dollars) each day add up to a big difference over time.

    Laurie Frugalfarmer says February 5

    LOVE that comment, Mike, and it’s SO true! Those small, seemingly insignificant daily actions eventually add up to BIG results!

Jayson says February 5

I didn’t use such strategy. It’s based on my situation and the deadline of debts. Actually, I usually pay those that are nearly overdue and with high interest. Paying off debt is personalized.

    Laurie Frugalfarmer says February 5

    That’s exactly right, Jayson!! Whatever works for you to get debt free is what you have to do. Great work on your own journey to debt freedom, my friend!

Heather says May 12

Agreed! Any progress is better than no progress. We all have different situations and are motivated in different ways. Choose the option that works for you and the end result will be the same!

Melissa says May 12

I discovered this post via Rockstar Finance, and it was perfectly timed! In March, something clicked inside and I was serious about eliminating my debt. So I plotted this plan where I would snowball debt so I had that psychological victory of paying balances off quicker. But then, after I paid off the few balances that could be eliminated within 2-3 months, I redid the math and the amount of interest saved had me replotting my payments based on debt avalanche, taking into account the monthly payment that would allow me pay off my 0% interest balance transfer within the introductory period. That replotting eliminated 2 months from my payment schedule, and is saving me ~$2500 in interest!

Kurt says May 12

“The numbers” favor the avalanche, but, for many, emotions favor the snowball. In the end, any debt repayment strategy that works for you is better than one that you’ll abandon before success, regardless of how strategies compare ‘on paper.’ The main thing is: pick a strategy, and get started!

Tim says May 12

Yes pick a strategy and then have consistency to STICK TO IT.. Don’t expect to see a big change in 3 to 6 months unless you have chosen to throw 90% of your income at your debt.

I hear a lot people complaining about paying debts and when you break it down they are paying maybe 3-5% on a pretty hefty debt… They need to realize that means it is going to take several years to get that paid off..

Too many people are impatient and want definite results now with minimal effort… it doesn’t work that way…

Vicki says May 12

Debt consolidation worked for me when I was in $40,000 debt without a clue. I did not want to make the same mistake twice so now I only use credit for points I can use and I pay it off each and every month. It was so easy to combine a few debts and ensure I had the required amount once a month. It can be overwhelming when you see a list of debts on paper. With one debt to pay off I found the whole experience streamlined. I am out of debt and living well.

Tyler Philbrook says May 12

So much truth in this. Debt is a huge deal for me and if I let it it can easily and quickly take all joy out of my life. I find figuring out what works for you by trial and error and then sticking with it with the ups and downs works the best.

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