Tackling Debt: Where to Start and How to Prioritize
- 2.1.2024
- Financial Education
- Frontwave Credit Union
So, you’ve had a lucrative year and you’re feeling more than comfortable with your savings. You’re ready to start tackling the debt you accrued along the way when you maxed out your credit card swiping your commuter pass aboard the Struggle Bus. But, when you turn to face your debt, it looks daunting, right? You may stop and think to yourself, “Where do I even begin?”
When it comes to paying off multiple debts, you have two reliable options at your disposal: the avalanche method or the snowball method. And either can help you come up for air in their own way.
Avalanche Method: Eliminating Your Highest Interest First
Should you choose to navigate your debt repayment journey via the avalanche route, you’re looking at an opportunity to save more money in the long run by saving on interest. The avalanche method wants you to address your debt that has the highest interest rate first while continuing to pay at least the minimum payment on all other debts as well. Essentially, let’s say you had $600 extra for the month to go towards debt repayment. Your minimum payment of all debts adds up to $400; that $400 will be used for those minimum payments. The remaining $200 you have will go towards, say, your credit card bill because it has the highest interest rate (a whopping 20% compared to the 6% interest on your auto loan). By paying off the debt with the highest interest rate first, you’re saving allllllll that extra money that doesn’t need to be paid on interest if you can help it. Once that debt is managed, you move on to the next debt with the second-highest interest rate.
Snowball Method: Smaller Debts for Small Wins
With the snowball method, you are addressing your debts with the smaller balance first (while still paying minimum payments on all debts, much like the avalanche method). By paying your smaller balances first, you can celebrate small wins before moving on to the bigger debts; this can be more approachable for those feeling extra stressed about their debt and can keep you motivated to continue tackling more and more. Just like you’re packing more snow on that growing snowball. Get it?
With the debt avalanche, you’re prioritizing interest rates; with the debt snowball, you’re prioritizing balances. Which you choose to move forward with simply depends on what your priority is: saving more money in the long run or narrowing down the number of debts you have in a quicker fashion.
Debt is daunting. That’s just a fact. But Frontwave can make it easier for you. Another fact. With a team of financial professionals who are as caring as they are dedicated, you can trust that at the end of the day, we got you. Stop by your local branch to chat through your financial planning needs or give our crew a buzz at 800-736-4500.
When it comes to paying off multiple debts, you have two reliable options at your disposal: the avalanche method or the snowball method. And either can help you come up for air in their own way.
Avalanche Method: Eliminating Your Highest Interest First
Should you choose to navigate your debt repayment journey via the avalanche route, you’re looking at an opportunity to save more money in the long run by saving on interest. The avalanche method wants you to address your debt that has the highest interest rate first while continuing to pay at least the minimum payment on all other debts as well. Essentially, let’s say you had $600 extra for the month to go towards debt repayment. Your minimum payment of all debts adds up to $400; that $400 will be used for those minimum payments. The remaining $200 you have will go towards, say, your credit card bill because it has the highest interest rate (a whopping 20% compared to the 6% interest on your auto loan). By paying off the debt with the highest interest rate first, you’re saving allllllll that extra money that doesn’t need to be paid on interest if you can help it. Once that debt is managed, you move on to the next debt with the second-highest interest rate.
Snowball Method: Smaller Debts for Small Wins
With the snowball method, you are addressing your debts with the smaller balance first (while still paying minimum payments on all debts, much like the avalanche method). By paying your smaller balances first, you can celebrate small wins before moving on to the bigger debts; this can be more approachable for those feeling extra stressed about their debt and can keep you motivated to continue tackling more and more. Just like you’re packing more snow on that growing snowball. Get it?
With the debt avalanche, you’re prioritizing interest rates; with the debt snowball, you’re prioritizing balances. Which you choose to move forward with simply depends on what your priority is: saving more money in the long run or narrowing down the number of debts you have in a quicker fashion.
Debt is daunting. That’s just a fact. But Frontwave can make it easier for you. Another fact. With a team of financial professionals who are as caring as they are dedicated, you can trust that at the end of the day, we got you. Stop by your local branch to chat through your financial planning needs or give our crew a buzz at 800-736-4500.