If you are looking to get out of debt as quickly as possible, you have two major strategies to choose from if you are looking for a general plan. The Debt Snowball involves paying down the smallest accounts on your books while the Debt Avalanche involves paying down accounts with large interest rates first. Here we will look at the advantages and disadvantages of each and also tell you when a completely different strategy is advisable.
Advantages of the Debt Snowball
This payoff technique is a great way to keep yourself in the game psychologically as well as financially. If you focus on playing down the smallest accounts first, you will be able to quickly get rid of some of your bills such as credit card debt. However, larger debts such as student loans will remain on your books for a long time accumulating interest.
If you have a steady source of income that you feel will remain steady for the next few years, you should be focusing on reducing the total amount of creditors on your books. You may be able to afford the organizational advantages that the debt snowball provides you are the expense of leaving bigger accounts alone. It is a Great way to keep from missing bills and being charged late fees and penalties from overlooking a mailing or missing a digital alert.
Next: Advantages of the Debt Avalanche