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2 methods of paying off debt.

April 21, 2024
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Understanding the Snowball and Avalanche methods of paying off debt.

The reserve bank recently increased the repo rate for the 8th consecutive time, making debt more expensive. To get rid of high interest rate debt, there are two popular methods: the snowball and the avalanche.

  1. The Snowball Method.

With this method, you focus on making extra payments to your smallest debt first, while you continue making minimum payments on your other debts. Once the smallest debt is paid off, you take all the money you were using to pay it off and add it to the next smallest debt and continue until all your debts are paid off. 

Using the Snowball method, you would pay extra on the smallest debt which is the clothing account, followed by the credit card, and end with the personal loan. The snowball method gives you a psychological boost every time you pay off your debts which helps you to stay motivated and make it easier to stick to your debt repayment plan.

   2. The Avalanche or Mathematical Method: 

With this method, you focus on making extra payments to your highest-interest debt first, while making minimum payments on your other debts. Once you pay off your most expensive debt, you take all the money you were using to pay it off and add it to the next expensive debt and continue until all your debts are paid off. 

Using the Avalanche or Mathematical method, you would pay extra on the most expensive debt which is the personal loan, followed by the clothing account, and end with the credit card.

Both methods have their own advantages and you should choose one that best fits your situation. The important thing is to have a plan, stay motivated, and stick to it. With hard work, discipline and the right mindset, you can pay off your debt.

Download your own debt repayment spreadsheet from https://finsesh.com/tools-list and plug in your own numbers Thank you @Finsesh for this really cool tool!


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