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If you find yourself juggling multiple debts, having a clear plan for paying them off can make a huge difference. Depending on which financial expert you follow, you will typically come across the Debt Snowball and Debt Avalanche method; both practical ways to pay off debt.
🔹 Debt snowball method
- Popularized
by US personal finance personality Dave Ramsey.
- The premise is that you pay off
your smallest balance first,
regardless of interest rate, while making minimum payments on all others.
- It is rooted
in behavioral psychology i.e quick wins keep people motivated.
🔹 Debt avalanche method
- Rooted in
mathematical optimization in
academic and financial planning circles. Championed by economists and
personal finance educators who focus on efficiency.
- The premise is that you pay off
the highest-interest debt first,
while making minimum payments on all others.
- It’s the
most cost-effective; saves the most money on interest and can get you
debt-free faster. However, since the highest-interest debt isn’t always
the smallest balance, clearing that one debt happens slowly and can
affect your motivation.
So, which is the better method?
It depends.
On your financial circumstances. On your personality.
For some people the debt avalanche is better
because it saves you money in interest by targeting your highest-interest debt
first.
However, some people find the debt snowball
method better because it can be more motivating to see a smaller debt paid off
more quickly. I’ve done the snowball and I know how motivating it
is to watch your debt reduce bit by bit.
There’s no one perfect method for everyone when it comes to paying off
debt. The choice between the avalanche vs. snowball method really comes down to
your situation and your preferences.
The debt snowball is focused on
giving you a psychological boost, while the debt avalanche is all about the
numbers.
Having a
strategy — and sticking to it — is what’s most important!
By Martha Songa
miss.songa@gmail.com
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