Paying off bad debt is a necessary part of building a healthy and wealthy future because debt impacts almost every area of our lives. To have the life you so richly deserve, using proven debt reducing strategies like the debt snowball or the debt avalanche method will help you pay off your debt faster.
What’s the difference between the debt snowball method and the debt avalanche method?
Both methods require financial discipline and are excellent smart money management strategies.
The debt snowball method focuses on the debt source that has the lowest outstanding amount, while meeting only the minimum payments on all other sources of debt.
For example, if you have a credit card with $1000 on it and another with $5000 of debt, using the debt snowball method, you would pay off the $1000 balance first. Once the balance reaches $0, you would then move on to pay off the debt on the $5000 credit card.
The nice thing about the debt snowball method is that you get to see the gains faster as you make payments on the smaller debt source, until you eliminate it.
The debt avalanche method, on the other hand, focuses on the debt source with the highest interest rate. So, in our example above, if the credit card with the $1000 balance had a 10% interest rate and the credit card with $5000 of debt had a 15% interest rate, you would apply as much money as possible to the $5000 card and make minimum payments on the other.
While you don’t see the gains as quickly with the debt avalanche method, you will save money in interest fees in the long run, and once that debt source is paid off, it gives you more money to apply to your other sources of debt, creating an avalanche of payments that will lead you to financial freedom!
No matter which you choose, the key to being successful with either method is to stop increasing your bad debt levels and start using an effective spending plan that helps you stay within your budget and pay off your debt.
How to decide which strategy is right for you?
Deciding on the debt snowball or debt avalanche strategy really depends on you and your personality.
Do you prefer more immediate gratification? If you do, then the debt snowball method will be perfect for you. With every payment you make, you will see the balance on the principal amount of debt dropping steadily.
Those visible decreases in the amount owing each month will help to keep you motivated.
Or do you enjoy efficiency? For people who prefer a more logical approach and appreciate the benefit of paying less interest, the debt avalanche is an excellent method to use on your debt-free journey. And the effectiveness of this method will keep you moving toward financial freedom.
No matter which method you choose to reduce your debt, consistency is paramount for smart money management. Making your payments every month and ensuring that you don’t continue to increase your sources of debt is the key to attaining financial success.
How do you stay on track and motivated?
Beyond your personal choice for the method you use, I have found that one of the things that will keep you on track with your financial goals is to understand how your goals fit into the bigger picture of your life. The clearer you are about the vision for your life and the things you want to accomplish, the easier it is to keep things in perspective and stay focused on what is truly important to you, as you move forward on your getting to debt-free journey.
If you haven’t created your bigger vision yet, start by answering these questions:
- What are your values and how do you want to embody them each day?
- What do you want your legacy to be?
- What is something you want people to say about you when you are gone?
- If you could only complete one big goal in your life, what would it be?
- What difference will that big goal make to your family? to the world?
After you have your bigger vision outlined, the thing to remember is that attaining financial freedom will make it a lot easier to reach your personal and professional goals, which is why doing everything you can to reduce your bad debt is so important.
Once you have your bigger vision in place, set SMART financial goals. These are goals that are specific, measurable, achievable, relevant and time-bound. They will help you with smart money management. CLICK HERE to learn more about SMART goals.
Setting goals is important because they provide a specific direction and purpose. They also give you a way to track your progress. Then, as you meet each goal, it will increase your motivation and confidence as you celebrate your success.
To keep your awareness dialed in on your financial success, you may find that building a progress chart is helpful. It will give you a wonderful visual representation of your progress and how your smart money habits are reducing your debt and helping you become financially free.
Some people do need a little extra help to stay on track with their financial goals. If that is you, consider engaging a mentor or accountability partner. That external commitment just might give you the extra support you need to keep your financial discipline high. And engaging in that kind of assistance also gives you someone to celebrate every win with!
Once your debt is paid off, you can start using that money to make smart investments to increase your streams of income, giving you more financial freedom, as you start living the life you really want.
It’s important to know that many people incur debt simply because they haven’t been taught financial literacy or how to effectively manage their money. This is why educating yourself, using trusted sources, will support you on your debt-free journey. A great way to get that information is on my podcast because I bring on vetted experts to share their wisdom and proven processes.
Walter Clarke is a great example. On the podcast, he shared The Formula for Creating Freedom with me. Walter draws from a career that spans over 25 years in investment management, education, and personal growth, and he offers a unique and deeply human approach to financial education—one that blends technical knowledge with lived experience, compassion, and timeless wisdom. CLICK HERE TO LISTEN NOW.
You will love the insights you gain!