Snowball or Avalanche? The Best Ways to Hit Your Debt

Snowball rolling down a hill
Sometimes it’s best to create small achievable goals to get the ball rolling…
Initially, when we hear about a snowball or avalanche, we know which one we would rather be hit with. Snowballs start off smaller and build up over time, meaning you have a better idea as to what is coming. An avalanche hits hard and fast but means the disaster is over a lot more quickly. We can use these analogies for when it comes to tackling our debt. Would you rather start off small and build it up slowly or hit it big with urgency and get it over and done with? Today we will talk about the pros and cons of both these debt repayment methods so that you have a better idea as to which one would work for you.

Debt Snowball

Now a debt snowball is a method when you pay off the smallest existing debt first so that you can motivate yourself with small victories along the way. Paying off debt is just as much a psychological battle as it is financial, so finding ways to drive yourself can be key. We are yet to find a person who is particularly fond of paying debt and we are not surprised either. It’s painful to reach payday finally and then have to make all the payments you have due, full well knowing you have to deal with them again next month as well. Credit cards, overdrafts, student loans, car loans, you name it. Paying these off altogether at the same time can be a daunting task. This is why some individuals opt for the snowball repayment method. We ignore the interest rates and focus on the amount. If our debt looked like this:
  • Student loan = $47,000
  • Car Loan = $18,000
  • Overdraft = $1,000
  • Credit card = $1,300
We would tackle the overdraft first so that we can tick one off the list and create a small psychological advantage for ourselves. It will help show us how our actions can make a difference and it will give us the taste of what getting rid of debt feels like. Once the Overdraft is gone, we then move on to the next smallest amount, the credit card and then the next, the car loan and so on and on. We get the ball rolling and put any extra money we can towards the smallest debt so that our journey to becoming debt free is small with small victories along the way. It’s just like with setting goals. Sometimes it’s best to create small, easily achievable ones so that way you stay motivated and on track towards your big end ones.

Debt Avalanche

This method works differently from the snowball method as instead of focusing on the amount that is owing; it instead focuses on interest rates. We use this way as it works out to be cheaper than the snowball method since we tackle the debts with the highest interest rates first. Eliminating debts such as high-interest rate credit cards means that the fees and interest on the card cannot sneakily build up over time. Tackling the main contributors that are preventing us getting rid of our debt burden, will result in a slightly smaller total amount paid. This method is excellent if you are motivated and have a long run approach to tackling your debt. It will require a longer period of time without small psychological victories, but in the end, it will get you to your destination quicker.

What Method Works Best For You?

This comes down to your personality and your current financial situation. Some individuals like the extra motivation from tackling their smaller debts first as getting the ball rolling can be a huge boost in helping overcome the total debt burden. So if you know you are the type of person that needs constant encouragement and already struggle to find the motivation to try to pay off all of your debt, a debt snowball method could be for you. But if you can look at the big picture and can stay motivated, a debt avalanche method would work for you. But also have a look and think about your current financial position. You may be obligated to take on certain payments before others and also produce a minimum amount each month to all debts, so creating a plan that works best, is entirely up to you. Paying off debt is not always easy, and we completely understand this. Life throws some curve balls at you sometimes, and little hiccups along the way can have detrimental ripple effects later on. This is why we recommend its best to sort your finances as early as possible as the sooner you take control, the sooner you can stop worrying about it. But still, if you ever feel unsure about your current debt situation, you can contact us about the possibilities of debt consolidation.

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