There are two main approaches you can take to debt repayment, and one may be more suitable to you depending on your personality. If you are someone who enjoys working hard for the big reward, you may prefer the avalanche strategy, whereas if you are someone who likes to see small wins to motivate yourself, the snowball strategy is a great option!
One approach is the avalanche debt repayment strategy. Just as an avalanche moves down a mountain from the top to the bottom, this strategy encourages you to tackle the highest-interest debt first. First you need to determine the amount of funds you can allot each month to debt repayment. Next, begin by paying each debt’s minimum monthly payment. The remaining funds will then be put towards paying off the highest-interest debt first.
Once it is paid off in total, the extra money left after making the minimum monthly payment would be put towards the second-highest interest debt.
The main advantage of this approach is that it reduces the amount of interest you pay, by eliminating the highest-interest debt as early as possible. This method also limits the total amount of time it takes to get out of debt, because interest will not add up as quickly.
An alternative approach is the snowball strategy, where you will begin by determining the amount of funds you can allot each month to pay off your debt. Following this, list each of your debts from smallest to largest. Pay only the minimum monthly payments on all of the debts, and then apply extra money to paying off the smallest debt first. Once the smallest debt is paid off in full, start putting the extra money from that debt payment towards the second-smallest debt.
You are snowballing your debt payments together. Paying off debts can seem more manageable with this method as you will more easily and quickly reduce some of the smaller debts off the list.
The main advantage of this approach is that you will more quickly see your first debt paid off because you are starting with the smallest debt, but you will end up paying more in interest because you are not beginning with the highest-interest debt.
Try out the strategy you think suits you best, and if you find you are not successful, consider switching to the other approach to see if you have more luck!