4 Ways To Payoff Debt

Stressed? Anxiety levels on an all-time high? Overwhelmed? Don’t know where to start when it comes to paying off all your debt? Wondering if it is normal to be in as much debt as you are in? The answer is it is completely normal. According to a recent survey, approximately 3 out of 4 millennial’s are in some form of debt.

There are ways to plan your debt execution strategy and I am going to help you out with that below. It is important to have a plan because without it, you would just be all over the place. List your debts out and tackle them one by one using the methods that I am providing you below.

Keep in mind that what works for you may not work for someone else hence the reason it is called “personal finance”. Find your groove and stick to it.

Personally, I used the debt snowball method simply because I love the adrenaline rush you get from small victories! It just keeps you motivated to keep going and shows you that you have control of your debt and that your debt no longer has control of you.

Here Are 4 Methods to Pay Off Debt

Debt Snowball

List all debts by balance, smallest to largest. Start paying off the debt with the smallest balance first. Ignore the interest rates and monthly payment amounts. We are focusing on balance only. With the other cards, stick to paying the minimum monthly payment. Quick wins make it easier to continue paying off debt.

Example:

                                Name                      Monthly Payment      Interest Rate       Balance

                                Credit Card 1                      $15                         14.99%                  $749.39

                                Credit Card 2                      $35                         12.15%                $3,889.57

                                Credit Card 3                      $25                         24.99%              $5,449.82

With the example above, you will start with credit card one. Use any extra cash that you may have coming in each month to put towards this card one. As far as card number 2 & 3, only pay the minimum monthly balances of $35 and $25. Once card one is paid in full then repeat the same steps with card numbers 2 and 3 until all debt is paid in full.               

Debt Avalanche (Stacking)

The debt avalanche or sometimes known as the debt stacking method is like debt snowball only you will pay more attention to interest rates instead of monthly payment amounts. List all debts in order of interest rates, highest interest rates to lowest. This method takes more time to pay off debt so if you are one that gets motivation with quick victories then this may not be the best fit for you.

Example:

                Name                      Monthly Payment            Interest Rate       Balance

Credit Card 3                      $25                                        24.99%                  $5,449.82

Credit Card 1                      $15                                         14.99%                   $749.39

Credit Card 2                      $35                                        12.15%                 $3,889.57

With the example above, you will focus on the interest rates only. Start with card number three and work your way down until you get to card number two until all balances have been fully satisfied.

Reverse Avalanche

This method is the same as the avalanche method only you will focus on the monthly payment amount. List your bills out by payment amount, largest to smallest. The concept with this method is that you are creating more cushion with your money by paying off the highest payment first.

Example:

                Name             Monthly Payment          Interest Rate        Balance

Credit Card 2                      $35                                  12.15%                  $3,889.57

Credit Card 3                      $25                                  24.99%                $5,449.82

Credit Card 1                      $15                                   14.99%                  $749.39

With the example above, you will start with card number two and work your way down to card number one. It may not always be beneficial to use this method because often-times, credit cards come with super low monthly payments. It would be more beneficial to use this method if your monthly payment amounts exceed the above example.

Memory Lane Method

With this last method, we are going to give each of the three credit cards above a specific name. You know how every time you hear a specific song or smell a specific smell, you revert to where you were when you heard the song or smelled the smell? That is exactly how this method works!

Example:

                Name                      Monthly Payment                      Interest Rate       Balance

                Shopping                          $15                                         14.99%                   $749.39

                Kid’s Basketball                $35                                        12.15%                  $3,889.57

                Divorce Attorney              $25                                         24.99%               $5,449.82

With this example, it would benefit you more to pay off the credit card marked as the divorce attorney. No one wants to relive the moment that they may have divorced their significant other every month.

Don’t forget to celebrate with every victory that you have! It keeps you from getting burnt out and keeps you motivated at the same time to pay off the next debt. Don’t go too over board though. Do something small like take yourself out to eat, go get a massage, or even enjoy a night out on the town.

There are pros and cons to each payoff method but the idea behind it all is to pick your method and go for the pay off!

What method do you like best? Share in the comments below.

Best Wishes,

ShaK