What do I say
Okay now it is my turn to give my opinion! When it comes to paying off debt, I donβt believe one method is superior over the other. I think both have pros and cons and the best method to paying off debt is to use a combination approach. Each personβs financial situation is very unique and different. You have to look at all options and then tailor your approach to what will work best for you given your short-term and long-term goals.
Letβs say Iβm the person in the example and I have a 600 credit score. Well I would probably focus on paying off the debts that will get my credit score up so that I can refinance my car and get a lower interest rate which would save me a lot of money in the long run. I would also negotiate with the credit card companies to get a lower interest rate. I would pay off the credit cards with the highest debt to credit ratio first because that would help my credit score increase quicker.
Debt | Total Owed | Limit | Debt to Credit Ratio |
Credit card 1 | $500 | $1,000 | 50% |
Credit card 2 | $725 | $5,000 | 14.5% |
Credit Card 3 | $1,030 | $1,200 | 85% |
In the example we used above this is how I would pay down my debt so that I can increase my credit score and renegotiate my interest rates with my lenders. I would still tackle the smallest debt first to get it out of the way.
Debt | Total Owed |
Credit card 1 | $500 |
Credit card 3 | $1,030 |
Credit Card 2 | $725 |
Car Loan | $15,000 |
Student Loan | $35,000 |
Now lets say renegotiating my rates isnβt an option because my credit score is already high or I have so many debts it would take a long time to increase my credit score. I would then probably lean towards the traditional debt snowball in this example because there are 3 debts that could be knocked out in a year.
If my combination method would be too complicated or overwhelming then I would recommend to do the debt snowball approach because you would be psychologically motivated to pay off your debt over a long period of time. You would have a lot of small wins over time which would make it easier to tackle those large debts as they come up, both financially and mentally.
Like I mentioned each personβs situation is completely unique so you might have to evaluate all of the options to see which would you feel the most comfortable with. You can always try out one method and then switch things up over time.
YES YES YES!!!!! We are on month 7
Of our debt snowball. GREAT article
Mellisa,
That is awesome! Keep up the great work π
Kylie
I must admit that before this, I didn’t really understand the avalanche versus the snowball method. Thanks so much for making things so clear and simplified.
Hi Joleisa,
I’m so glad to help you understand it! My goal was to break it down to be as easy to understand as possible, glad it helped you π
Kylie
I’m not sure where you’re getting your information, but good topic.
I needs to spend some time learning more or understanding more.
Thanks for magnificent information I was looking for this
info for my mission. http://Highlandavenuerestaurant.com/
Hi there,
Thanks for the feedback! If you click on the links it will take you to the source where I found my information. I hope this article helped!
Kylie
Well explained! I’m going to reference this post in an upcoming post on my blog. Will let you know once I have it up π
Okay that would be awesome, thank you! π
Kylie
Saved as a favorite, I love your web site!