March 27, 2024
Personal finances are consistently ranked as the number one stressor for most American adults, so saving money on interest payments, being able to financially handle an emergency or planning toward spending time as one wishes are all worthwhile objectives and ways that we can bolster our overall peace of mind.
Through that lens, having an organized plan for chipping away at debt should be considered a worthy component of one’s personal wellness goals.
We’ve outlined below two systems for automating and accelerating one’s debt repayment: the Debt Avalanche and the Debt Snowball methods. Some finance gurus will be very staunch in recommending one over the other, but we believe the one that is best is whichever one you can stick to and maintain. When employed with consistency, either solution will free you from debt faster, giving you some serenity as well as saving money. Either way, what matters is that you are committing to a debt reduction plan, which is a great first step!
Click on each method below to see details on how it works
Debt Snowball Method
Sample scenario below for illustrative purposes
Sample scenario below for illustrative purposes
To start, sort your debt from lowest total balance to highest.
Total Balance | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
Student Loan | $2,000 | $600 | ||
Car Loan | $4,000 | $400 | ||
Credit Card | $6,000 | $100 | ||
Mortgage | $200,000 | $2,800 | ||
TOTAL | $3,900 |
Decide upon the extra amount of money in your budget that you would like to earmark for paying down debt. Usually this will come from a spending reduction or pay increase. In the example below, we are assuming an extra $100 that can be allocated for debt reduction.
Total Balance | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
Student Loan | $2,000 | $600 | $100 | |
Car Loan | $4,000 | $400 | 0 | |
Credit Card | $6,000 | $100 | 0 | |
Mortgage | $200,000 | $2,800 | 0 | |
TOTAL | $3,900 |
Helpful hint: Choose an amount that you know you can stick with rather than stretching too hard. Consistency is more important than the amount!
Pay the minimum payment on all debts except for the one with the lowest balance. To that payment, add your extra amount.
Total Balance | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
Student Loan | $2,000 | $600 | $100 | $700 |
Car Loan | $4,000 | $400 | 0 | $400 |
Credit Card | $6,000 | $100 | 0 | $100 |
Mortgage | $200,000 | $2,800 | 0 | $2,800 |
TOTAL | $3,900 | $4,000 |
After you finish paying off the first debt, move down the list to your second highest payment and add to it the total payment from the previous debt. In this example, we are taking the $700 payment no longer needed for the student loan and adding it to the car payment.
Total Balance | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
|
|
|
|
|
Car Loan | $4,000 | $400 | $700 | $1,100 |
Credit Card | $6,000 | $100 | 0 | $100 |
Mortgage | $200,000 | $2,800 | 0 | $2,800 |
TOTAL | $3,300 | $4,000 |
Helpful hint: Notice that the minimum payments will start to go down but the total that is being paid toward your debt every month never changes!
Keep going until all your debt reduction budget is concentrated on the final pay-off.
Total Balance | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
Credit Card | $6,000 | $100 | $1,100 | $1,200 |
Mortgage | $200,000 | $2,800 | 0 | $2,800 |
TOTAL | $2,900 | $4,000 |
Total Balance | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $200,000 | $2,800 | $1,200 | $4,000 |
TOTAL | $2,800 | $4,000 |
Helpful hint: Depending on your personal situation, if the loan has an interest rate below 6%, you may want to consider paying down that debt as scheduled and investing the “additional payment” instead.
Debt Avalanche Method
Sample scenario below for illustrative purposes
Sample scenario below for illustrative purposes
To start, sort your debt from highest interest rate to lowest.
Interest Rate | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
Credit Card | 22% | $100 | ||
Student Loan | 8% | $600 | ||
Car Loan | 6% | $400 | ||
Mortgage | 5% | $2,800 | ||
TOTAL | $3,900 |
Decide the extra amount of money in your budget that you would like to earmark for paying down debt. Usually this will come from a spending reduction or pay increase. In the example below, we are assuming an extra $100 that can be allocated for debt reduction.
Interest Rate | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
Credit Card | 22% | $100 | $100 | |
Student Loan | 8% | $600 | 0 | |
Car Loan | 6% | $400 | 0 | |
Mortgage | 5% | $2,800 | 0 | |
TOTAL | $3,900 |
Helpful hint: Choose an amount that you know you can stick with rather than stretching too hard. Consistency is more important than the amount!
Pay the minimum payment on all debts except for the one with the highest interest. To that payment, add your extra amount.
Interest Rate | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
Credit Card | 22% | $100 | $100 | $200 |
Student Loan | 8% | $600 | 0 | $600 |
Car Loan | 6% | $400 | 0 | $400 |
Mortgage | 5% | $2,800 | 0 | $2,800 |
TOTAL | $3,900 | $4,000 |
After you finish paying off the first debt, move down the list to your second highest payment and add to it the total payment from the previous debt. In this example, we are taking the $200 payment no longer needed for the credit card and adding it to the student loan payment.
Interest Rate | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
|
|
|
|
|
Student Loan | 8% | $600 | $200 | $800 |
Car Loan | 6% | $400 | 0 | $400 |
Mortgage | 5% | $2,800 | 0 | $2,800 |
TOTAL | $3,800 | $4,000 |
Helpful hint: Notice that the minimum payments will start to go down but the total that is being paid toward your debt every month never changes!
Keep going until all your debt reduction budget is concentrated on the final pay-off.
Interest Rate | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
Car Loan | 6% | $400 | $800 | $1,200 |
Mortgage | 5% | $2,800 | 0 | $2,800 |
TOTAL | $3,200 | $4,000 |
Interest Rate | Minimum Payment | Additional Payment | Total Payment | |
|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | 5% | $2,800 | $1,200 | $4,000 |
TOTAL | $2,800 | $4,000 |
