Hi guys, Bridget here to talk to you about
paying off debt and using either the Debt Avalanche or the Debt Snowball method. Now, if you’re overwhelmed by your debt and
you feel like you’re buried in credit cards, lines of credit, student loans, car loans,
it can be hard to know what to tackle first. You might have already heard of one or both
of these methods for tackling multiple debts, but aren’t sure which one is best for you. Before we get into it, I do want to point
out that when it comes down to it, the best method for paying off your debt is whichever
one works for you. Both the Debt Avalanche and the Debt Snowball
method have pros and cons, and really you just have to find whatever feels right for
your debts. Whatever gets you to debt free is the one
that works. First, there’s the Debt Avalanche Method. This consists of tackling the debt with the
highest interest rate first. This means, if you have a number of different
loans at various interest rates, you would make the minimum payment on all of them and
then put any extra payments towards the one with the highest interest rate. This might not be your largest loan balance,
it might not be your smallest, it’s just whatever one is costing you the most per dollar in
interest. Once you’ve paid off your highest interest
debt, you then focus your efforts on your next highest interest rate debt, and so on
until you pay off your lowest interest debt last. The Debt Avalanche Method is awesome because
it’s the one that will ensure you pay the least amount of money in interest overall. Because you’re tackling your highest interest
debts first, you pay off your most expensive loans and leave the least expensive ones until
last. The Debt Avalanche Method makes the most sense
mathematically, but it might not feel the best depending on what your loan balances
are. If your highest interest rate debt is also
your biggest, it can feel frustrating and like you’re getting nowhere when you’re making
payments on this debt. Likewise, other debts have some more psychological
weight to them. If you owe a loan to friends or family, it
might be 0% but it might just be weighing on you and making you uncomfortable every
time you see them. So while the Debt Avalanche Method would tell
you to ignore these completely until last, you might not feel comfortable doing that. The next method for paying off debt is the
Debt Snowball Method, and this consists of tackling your smallest debt balances first. If you have a number of debts, you would make
the minimum payment on all of them, and then direct any extra payments towards the lowest
loan balance. Once that debt is paid off, you then roll
the payment into the next highest balance loan. This gives you momentum because you immediately
get a quick win and a sense of achievement for paying off a debt, and this helps motivate
you to tackle the other debts that you still have. Psychologically, the Debt Snowball has huge
payoff factors in terms of motivation and staying committed to paying off your debt,
but mathematically you do pay more than the Debt Avalanche Method because you’re not necessarily
tackling your most expensive loans first. Whether you should choose the Debt Avalanche
or the Debt Snowball is up to you. The best thing you can do is make a list of
all your debts with their balances and interest rates. Look at which one is costing you the most
money, look at which one is costing you the most emotional pain. Try to decide which one would be the easiest
to pay off — whether that’s the lowest balance or the highest interest rate, and focus on
tackling that debt. The most important thing is that you get to
debt free and whether it’s a combination of the Debt Snowball, the Debt Avalanche, or
one or the other or neither, whichever strategy works best for you is the one that you should
stick to. Hope you found this video helpful and are
inspired to put a little bit extra towards your debts today. If you need any more motivation, I do have
a free Debt Crusher eCourse that I will link in the description below that will provide
you with the motivation, tools, spreadsheets, and everything you need to tackle your debts. If you enjoyed this video, please give it
a thumbs up and subscribe to my channel and I will see you next week.