Did you know that many credit cards will not be paid off in your lifetime if you only make the minimum payments? This is because oftentimes the minimum payment is only barely covering the interest owed each month. 

While this might be alarming, making even a small additional payment could make a huge difference. Adding $50 a month on a $2,000 credit card balance could get you out of debt in 3 years instead of over 100 years. 

In this article, we will walk you through two popular and easy-to-implement strategies for paying down your debt: the snowball and avalanche methods. 

Debt pay-down strategies are a must for anybody looking to crush their debt.

Debt repayment strategies are a great way to become debt-free because they help avoid losing your income to interest and provide a simple framework for getting out of debt sooner. 

Consider Sarah, a working mother balancing her career and family. She has a mix of credit card debt, a car loan, and student loans. With so many accounts, she doesn’t know where to start, and managing these payments while covering household expenses and saving for her children's future can be overwhelming. Sarah needs a debt repayment strategy that fits her busy lifestyle and provides a clear path to becoming debt-free. Here are two different examples of how she could pay her debts using two different strategies: 

The debt snowball prioritizes the lowest balance first

The snowball method provides quick wins by targeting your lower balance first. This can boost your motivation and sense of accomplishment. Seeing debts disappear one by one can be incredibly encouraging. This method comes with some benefits as well as some drawbacks…

• Pros: Quick wins, boosts motivation.
• Cons: Potentially higher overall interest costs.

How it works:

1. List all debts from smallest to largest balance, regardless of interest rate. Budge makes this easy by gathering all of your debts into one dashboard. Try Budge for free here. 
2. Make minimum payments on all debts except the smallest.
3. Put any extra money toward the smallest debt.
4. Once the smallest debt is paid off, move to the next smallest debt.
5. Take the money saved from the minimum payment of the paid-off debt and apply it to the next smallest debt. 

Sarah pays her debts from lowest balance to highest: 

1. A $500 airline credit card debt with a 28% interest rate
2. A $2,000 store credit card with a 22% interest rate
3. A $8,000 car loan with a 10% interest rate.
4. A $10,000 student loan at 6% interest.

Each time she pays off a debt, she has more money from saved interest and not having to make a minimum payment on the paid-off debt. She uses this to pay the next balance. 

Although she would be accumulating more interest from the store card, paying off the airline card first creates a quick win and allows her to throw more money towards the $2,000 balance store card. 

The debt avalanche prioritizes the highest interest rate first

By focusing on high-interest debts first, you'll save money on interest and pay off your debts faster. The benefits and drawbacks of this method include…

• Pros: Saves money on interest.
• Cons: May take longer to see initial progress.

How it works:

1. List all debts from highest to lowest interest rate.
2. Make minimum payments on all debts except the one with the highest interest rate.‍
3. Even a small amount can make a big difference. Budge lets users easily compare how much faster you can become debt-free by putting extra money aside each month. Try Budge here.‍
4. Once the highest-interest debt is paid off, move to the next highest. 
5. Just like the snowball, roll the amount of money saved from the minimum payment into the next debt’s payments.

Sarah pays her debts from the highest interest rate to the lowest: 

1. A $1,000 store credit card with a 28% interest rate
2. A $500 airline credit card debt with a 22% interest rate
3. A $8,000 car loan with a 10% interest rate
4. A $10,000 student loan with a 6% interest rate.

Even though she could pay the airline card off faster, by focusing on the store credit card first, she will save money on interest. 

What is the best pay-down method for you?

The snowball method is often the best choice for many because its small wins motivate you to stay consistent with your payments, ultimately leading to a more effective debt repayment plan.

However, the best method for you depends mainly on your self-assessment. Are you motivated by quick wins or do you see yourself trusting longer processes? Another factor that should decide which method you choose is the money you could save with each method. Using Budge, see how much time and money you can save by applying the debt snowball or avalanche method with the click of a button. 

Other tips to make debt repayment a breeze

Stay consistent by putting debt in the back of your mind. Budge allows you to automatically set up a debt payment system so you can worry less about your debt and enjoy more of what makes you happy.

Create a realistic budget to manage your income and expenses effectively. Allocate funds specifically for debt repayment.

Have a safety net to prevent you from accruing more debt in case of unexpected expenses. Most financial coaches recommend 3 months of income in the bank, but even a small emergency fund can go a long way. 

Conclusion

Choosing between the snowball and avalanche methods for debt repayment boils down to understanding your personal motivation and financial priorities. If quick wins inspire you to keep pushing forward, the snowball method might be your best bet. On the other hand, if you're focused on minimizing interest and maximizing savings, the avalanche approach could serve you better.

Whichever strategy you choose, remember that the ultimate goal is achieving financial freedom, and tools like Budge can streamline this journey by giving you a personalized plan based on your unique situation.