Paying off debt can be hard, deflating, exhausting, and (insert all the negative emotions here), am I right?
Maybe you’re simply paying minimums on your balances and don’t see an end in sight. Perhaps you’ve even begun the process of strategizing the best, fastest way to pay off all your debts, only to be left with more confusion and frustration than you started with.
Alternately, maybe you’ve just begun your debt payoff journey and you’re feeling hopeful and excited to slay these payments once and for all. Go you!
Whichever scenario resonates most for you, the reality of finding the best route to take remains the same. There is a lot of advice out there from really smart people, with information as to why one debt payoff strategy works better than the other.
Problem is, one smart person’s advice conflicts with information you read from that other convincing source who gives completely unrelated guidance.
Is anyone else freaking out and sweating right now? What is a person to do?!
Friend, take a deep breath. Help is on the way because I am about to walk you through our favorite strategies. I am even going to share with you the single best debt payoff strategy and it may not be the answer you expect or want. Curveballs are fun, right?!
But first, let’s discuss our favorite debt payoff strategies. You’ve probably heard of many of these before. Some you may not have. Let’s dive in..
This method involves prioritizing your debts in order from smallest to largest balance. You’d begin by paying off the debt with the smallest balance first, throwing any extra money you can toward that debt while continuing to make minimum payments on all others.
Once your smallest debt is paid off, you’d then take the amount that you were previously dedicating toward paying that first debt off and now add that amount to the minimum payment of your next smallest debt.
This creates a snowball effect in which the amount of money you’re able to throw at your debts grows upon itself while your balances eventually disappear.
Getting your lowest balance paid off can happen fairly quickly and feels really good. This can provide enormous motivation towards paying off your next one.
The Avalanche Method puts much more emphasis on the interest rate you’re being charged for each debt. You’d start by listing your bills in order of highest interest rate to lowest. Next, begin making extra payments toward the balance with the highest interest rate while paying the minimum on all others.
Once the highest interest rate balance is paid off, you carry over the payments you were making to that one and start crushing the debt with the next highest interest – much like the Snowball Method.
Mathematically speaking, this method is the quickest. Psychologically speaking, it could wear a person down real quick IF they are motivated by quick wins.
Reason being – if the debt with the highest interest rate has a large balance, it might take awhile to pay it off, potentially causing you to lose steam and throw in the towel.
Highest to Lowest Payment Method
With this strategy, you’d list your debts in order from highest minimum payment to lowest minimum payment and then proceed to pay your balances off in that order.
If you are strapped for cash and need to free up as much money as possible as quickly as possible, this might be the method for you. By paying off your debts in order from highest to lowest payment, you’ll be left with a little extra wiggle room in your budget, a little quicker.
Regardless of their balances, payments, and interest rates, some debts simply carry more emotional weight than the others. Balances from the loss of a loved one, divorce, certain medical bills, even decisions that make you cringe are just a few examples.
Listen, if the thought of paying off an especially painful or annoying debt as quickly as possible fills you with the most excitement, here’s my permission (not that you need it) to forget the numbers and hit that debt hard.
Maybe you’ve read these options and understand the logic behind them but have no idea which one to go with. I’ve put together a debt payoff system that takes into account each of the previously mentioned methods.
This strategy scores each debt based on individual balances, payments, interest rates, AND emotional heaviness. Whichever debt earns the highest score is the one you’d start with, subsequently moving your way down the list based on overall score.
This approach takes the best of all the previously mentioned worlds and slaps it onto one magical blueprint. I plan on dedicating an entire blog post to this in the near future so, if you’d like more information on it, then stay tuned!
So, What’s the Best Strategy?
It really all comes down to what motivates you the most because motivation ushers sustainability and a strategy that is sustainable is going to be the quickest long-term. Bottom line.
As a quick recap, here are the tactics I’ve mentioned including reasons you might choose to go that route.
- Snowball Method = motivating, quicker wins up-front.
- Avalanche = Mathematically quickest from start to finish IF you’re able to avoid burnout from potentially slower wins up-front.
- Highest Payment = Frees up cash faster. Great for those on tight budgets.
- Emotional Heaviness = Absolutely fed up with a debt and want it behind you, like, yesterday? Start here.
- Score Method = For those who are looking for a more personalized, holistic approach while still being effective.
Once you decide which strategy to move forward with, just promise me one thing. Stick with it. Avoid the temptation to hop from one strategy to the next, experimenting with each of them along the way.
Simply pick the one that resonates with you the most and commit to it in order to avoid frustration and delay.
Hopefully you’ve gained some extra clarity as to which route you’d like to take. No worries if you’re still feeling a little confused or maybe even overwhelmed. We have financial coaches on standby who are experts at guiding their clients through decisions like this and would love to walk alongside you as well.
If you’d like personalized help with your finances, schedule a call with one of our coaches today and we’ll get your money moving in the right direction.
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