Debt Repayment: Breaking Free
Debt steals from your future to pay for your past. Getting out of debt is one of the best investments you can make.
Two Main Strategies
1. The Debt Snowball
Focus: Psychology and Momentum.
List your debts from small to largest balance (ignoring interest rates). Pay minimums on everything else, and throw every extra dollar at the smallest debt. When it's gone, roll that payment into the next smallest.
2. The Debt Avalanche
Focus: Math and Efficiency.
List your debts from highest interest rate to lowest. Attack the debt with the highest rate first. This saves you the most money in interest over time.
Which is Better?
Mathematically, the Avalanche wins. But personal finance is personal. If you need quick wins to stay motivated, the Snowball is often more effective.
Real Life Examples
Mrs. Williams
Teacher . $60k . 20% Savings
She had student loans and a small credit card balance. She used the Snowball method implies she paid off the credit card first to get a quick win, then attacked the student loans. She is now debt-free.
Mr. Johnson
Average Joe . $90k . 10% Savings
He pays a little extra on his credit cards each month using the Avalanche method to save interest, but he keeps using the cards for "points," so his balance never actually goes down.
Mr. Smith
Mr. Popular . $120k . 5% Savings
He has $20k in credit card debt but relies on his high income to make minimum payments. He ignores the 22% interest rate because "he can afford the monthly payment," costing him thousands a year.
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Strategies to crush your debt:
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