Are you swimming in an ocean of debt? Is the struggle to pay your bills too much? Looking for a way to finally get on track to being debt free? You are not alone! The average debt per person in the United States is just over $17,000 at the time I am writing this post.
Let’s take a look at some popular methods of getting out of debt.
Being in debt can undoubtedly be overwhelming and leave you with a feeling of helplessness. Each month, that mountain of bills is staring you in the face. Not only do you need to pay, but you must also pay them on time to avoid additional interest and fees. Not paying your bills on time can also ding your credit score for up to 7 years.
Below, I will outline two easy, tried and true, methods of paying off debt to help you get the best plan in place for you. Once you have a plan, you are much more likely to follow through on paying off the debt and gaining a sense of freedom. For both plans, you will need to get a list of all your debts. This list should include the amount owed along with the interest rate for each debt.
Debt Snowball
The debt snowball method focuses on the amount that you owe on each debt.
- Step 1: You line up all your debts in order from smallest amount owed to largest amount owed.
- Step 2: Pay the minimum amount on all debts.
- Step 3: Any money left in your budget then goes to the smallest debt each month. You will remain on this step until the smallest debt is paid off.
- Step 4: Repeat steps 1-3 with the next smallest debt until all debts are paid off.
Debt Avalanche
The debt avalanche method focuses on the interest rate associated with each of your debts.
- Step 1: You line up all your debts in order from highest interest rate to lowest interest rate.
- Step 2: Pay the minimum amount on all debts.
- Step 3: Any money left in your budget then goes to the debt with the largest interest rate each month. You will remain on this step until the largest interest debt is paid off.
- Step 4: Repeat steps 1-3 with the next largest interest rate until all debts are paid off.
Which method is better???
The answer is…whichever method works for you! The debt avalanche is my personal favorite because it will save you the most money in the end. Not only does it help you save but it actually allows you to reach your goal earlier. The downfall is that it may take longer to reach that first milestone of paying off a debt. It is this reason why a lot of people prefer the debt snowball method. You are paying off your smallest debt first, which happens much quicker, so it provides that motivation to keep going. Ultimately, you know yourself best. You should choose the method you will be more likely to stick with for the long run. The method is not nearly as important as the goal of being debt free!
Stay out of debt
Once you reach your debt-free goal, it is important to stay that way! Check out my posts over budgets, ways to save on everyday needs, and building emergency and sinking funds to help keep yourself living within your means.
I’m so proud of you for taking charge of your finances and working to become debt-free. You can do this!