We’ve spent the last few weeks covering the most common types of debt – credit card, student loans, home and auto loans. We’ve learned about secured and unsecured debt, details about how each type of loan is obtained, how the interest rates are set and how the payments differ. This week our focus is on paying these debts off.
As you have probably noticed, it takes almost no time to build debt, but what feels like forever to pay it off. But having a strategy will help you accelerate your debt repayment. The debt avalanche prioritizes paying off debt with the highest interest rate, by focusing all your extra funds towards that debt, saving you money in total interest paid compared to other methods. The debt snowball, on the other hand, prioritizes paying off your debt with the smallest balance, moving to the next smallest once the first one is paid off, gaining momentum as each debt is paid off. It can give you a sense of accomplishment to see individual debts drop off quicker, but it will probably cost you more in interest compared to the debt avalanche. With both methods, you begin by making the minimum payments on all your debts every month, then putting remaining funds towards whichever debt your chosen method points to.
To read more about these methods and other ways to reduce your debt, check out the full article in our library here. Another good resource is our recent webinar, “Debt: The Struggle is Real“ also available in our library.