Debt Reduction Methods
No one likes living in debt. However, the truth of the matter is that we will spend most of our lives owing money to others for things like our homes, vehicles and other large costs. But living with debt doesn’t have to be oppressive.
Paying off debt takes consistency and willpower, but when your balance finally hits $0 it can feel like a weight is lifted off your shoulders. If you’ve made the resolution to do something about your debt this year, try these different payoff methods. Each one has varying benefits, so take a look to see which one best fits you.
The Snowball Method
This method sets you up for a quick win to start you on your debt repayment journey. Just a like a snowball starts small and gradually grows, the Snowball Method has you start with your smallest debt balance and work your way to gradually larger debts.
Order your debt balances from smallest to highest
Pay off the smallest one first while making minimum payments on the rest
Getting the smallest one paid off first gives you encouragement to stick with it
The Avalanche Method
This method is somewhat the opposite of the Snowball Method, but it helps you pay the least amount of money over time. By starting with the loan with the highest interest rate, you reduce the amount of interest you pay on your loans.
Order your debts from highest interest rate to lowest interest rate
Pay down the highest interest debt first while paying the minimum on the other debts
You’ll pay far less in interest over the life of the debts
Other Debt Repayment Methods
Hybrid- this is the same as the Avalanche, except after ordering your debt from highest to lowest interest rate, you move the debt with the lowest balance to the top to pay first. This gives you the quick win you find with the Snowball, but also helps reduce the interest you pay.
Which is most annoying?- which of your debts is the most annoying to you? If one is more irritating than the others, pay that one first.
Which debt has the most emotional impact- similarly, if there is debt that carries more emotional impact, such as paying back a family member or friend, get rid of that one first.
Living with debt may be a near certainty, but it doesn’t have to crush you. Try the debt repayment method that best fits you this year. You can also come to Lincoln Savings Bank to see how we can help you manage your debt.
Lincoln Savings Bank, member FDIC