Debt Payoff Strategies
Debt Snowball Method:
Pay minimum on all debts, then put extra money toward the smallest balance first. Provides psychological motivation through quick wins.
Debt Avalanche Method:
Pay minimum on all debts, then put extra money toward the highest interest rate first. Mathematically optimal, saves the most money.
Strategy Comparison
| Strategy | Best For | Advantages | Disadvantages | Time to Payoff |
|---|
| Debt Snowball | Motivation needed | Quick wins, momentum | More interest paid | Longer |
| Debt Avalanche | Math-focused | Saves most money | Slower initial progress | Shorter |
| Debt Consolidation | Multiple high-rate debts | Single payment, lower rate | May extend timeline | Variable |
| Balance Transfer | Credit card debt | 0% intro rates | Transfer fees, credit req. | Shorter |
Choosing the Right Strategy:
- Use Snowball if: You need motivation, have trouble sticking to plans, want quick victories
- Use Avalanche if: You're disciplined, want to save maximum money, don't need motivation
- Use Consolidation if: You have multiple debts, qualify for lower rates, want simplicity
- Hybrid Approach: Start with snowball for motivation, switch to avalanche later
Interest Rate Impact
| Debt Type | Typical Rate | Priority Level | Notes |
|---|
| Credit Cards | 15-25% | High | Usually highest rates |
| Personal Loans | 6-36% | Medium-High | Varies by credit score |
| Auto Loans | 3-7% | Low-Medium | Secured by vehicle |
| Student Loans | 3-8% | Low | Tax deductible interest |
| Mortgages | 3-8% | Low | Tax deductible, appreciating asset |