Snowball Method vs Avalanche Method
1. Payoff your smallest debt first and apply the money from the first loan to the 2nd loan and then the 1st and 2nd loan money to the 3rd loan and so on… This creates a snowball effect which will psychologically eliminate debt and make you feel better about getting rid of debt faster.
The debt snowball method is a debt reduction strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each balance. When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.
2. Payoff the debt with the highest interest rate first thereby saving yourself the most money. Economically this would make the most sense. Unfortunately people have a hard time sticking go a plan when it seems harder. This will save you the most money (interest) over the long run.
The debt avalanche method involves making minimum payments on all debt, then using any remaining money to pay off the debt with the highest interest rate. The debt snowball method involves paying off the smallest debts first to get them out of the way before moving on to bigger ones.
Either one of these plans will get you out of debt eventually. It just takes the willpower to stick with either plan. Snowball method vs Avalanche method.
What do you think about these plans? Please comment.