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Today I want to talk to you about my passion–paying off debt!
If you’ve ever taken the time to sit down and take a good, hard look at your debt (if not, you should totally go do that now) then you know why paying off debt is so important.
Debt payments eat up so much of our income each month. The last time I calculated mine and my husband’s debt, I found out we were paying over $700 a month just in minimum payments. These debts didn’t even include car payments, since we both drive cheap, paid-for cars.
Imagine what you could do if you didn’t have to make those minimum debt payments each month. What would an extra $700 a month look like to you? Would it be enough for you to quit your job and stay home with your kids? Would it be enough for you to take a trip this year to the place you’ve been dreaming of for years?
I’m sure you don’t need much convincing from me on paying off your debt. After all, you’re already here, reading this post, so that means you want to know the best way to pay off your debt.
The very best way to pay off debt is the way you will stick to.
Now please, hear me out. I say that the best way to pay off debt is the way you will actually do it because there are many good ways to pay off debt out there.
You’ve probably heard of a few different methods: mainly, the snowball and the avalanche methods.
The Debt Snowball Method
Basically, the debt snowball method teaches you to pay off your debts in order of smallest to largest balance. You do this by listing each debt you have by the balance remaining on them, and paying them off one by one. As you pay off each debt, you add what you were paying to that one on to the next debt until they’re all paid off.
- $250 Kohl’s Card minimum payment: $25
- $500 Chase Card minimum payment: $35
- $650 medical bill minimum payment: $75
In the above example, you would pay off the Kohl’s card first and then take the $25 you were already paying on that and add it to the Chase card minimum payment. You’d continue down the line until each debt was paid off.
The Debt Avalanche Method
The avalanche method teaches you to pay off your debts by highest interest rate first.
- $500 Chase Card Interest rate: 22%
- $250 Kohl’s Card Interest rate: 16%
- $650 medical bill Interest rate: 5%
In this example you would pay off the Chase card first since it has the highest interest rate. You wouldn’t be able to pay it off as quickly as you would the Kohl’s card, but you would ultimately save more money in interest payments.
Which one is better?
I believe in most cases (maybe even all cases) it really doesn’t matter which method you follow. Mathematically yes, you will save more money with the avalanche method, but if you keep getting discouraged with your slow progress, is it really worth saving a few bucks?
To some people, saving the most amount of money possible is what is most important to them. For these people, I would definitely recommend the debt avalanche payoff method.
For others, who need quick wins and lots of motivation to pay off debt, I would definitely recommend the debt snowball method. You will end up paying more in interest with this method, but you will get to celebrate as you quickly pay off one debt after the other.
If you’re still unsure which method to follow, I would recommend the debt snowball method. It’s incredibly satisfying to quickly knock out some debts and it helps you keep your momentum up for the long haul.
Which method I follow:
You may be wondering how I’ve chosen to pay off debt. Technically, I’m not following either the debt snowball or the avalanche method.
I’m following almost a hybrid between the two. I started out with the debt snowball method, and quickly paid off a few small debts (our cell phones we bought on a payment plan, a store credit card, and a few credit cards with smaller balances.)
But then, our debts started getting bigger: credit cards with high limits that we had maxed out, an equipment loan, and some lingering student loans from my one semester in college.
Suddenly, our quick wins weren’t so quick anymore. It would take months to pay off just one card, instead of only a few weeks.
One day when I was feeling especially discouraged about our debt, I got a bit of a lucky break.
I found out the car I drove had the opportunity to be bought back from the manufacturer for close to $13k, thanks to a recall and a huge lawsuit that came out of it. We had a choice to make then–continue to follow the debt snowball method and knock out quite a few credit cards, or take care of some of the bigger debts we had all at once.
The one debt that has made me cringe more than any of them is the credit card that’s almost maxed out at $7,000. I signed up for this card with the best of intentions, to pay my mortgage with it and earn enough reward points to get some flight tickets for free. That card quickly turned into an almost $7,000 mistake.
This is the debt that makes me angry every time I pull up my debt list. This is the one I am the most ashamed of, and the one I want gone the worst. This is the debt that eats up almost $200 a month, most of that in interest.
So instead of following the snowball method to a “T”, we’ve decided to pay off this credit card first with the money we get from my car’s buyback, instead of waiting to pay it off last. This will free up a good chunk of money to put towards our other debts, and I don’t have to see it laughing at me in the face anymore.
Follow the payoff method that’s right for you.
I want you to know that it’s OK to follow your own pay-off method. The important part is just getting it DONE, and getting it done as fast as possible.
When you’re in the middle of paying off a huge mountain of debt, just remember what your future could look like with all those monthly payments gone. Remind yourself why it’s worth it to push through and make the hard choices every day.
Choose a debt payoff method to follow today and just get started. Any plan is better than no plan, and it’s even OK to change things up after you’ve started. Just get started today, and I’ll see you on the other side!