Managing debt is challenging for many people, and there’s no clear consensus on the best way to do it. In debt management, as in many other areas of life, success depends in part on finding a system that works for you—even if it makes little sense to others.Managing debt is challenging for many people, and there’s no clear consensus on the best way to do it. In debt management, as in many other areas of life, success depends in part on finding a system that works for you—even if it makes little sense to others.
While there are many different ways to tackle paying off debt, the greatest contention among experts seems to lie in the “snowball” v. “avalanche” debate.
Competing Theories on Managing Debt
What is the Snowball Method of Paying Down Debt?
The strategy commonly referred to as the “snowball” method involves starting with your smallest debt and putting any additional debt payment you can make toward that one account. When that account is paid off, you shift your focus to the next lowest debt. The snowball method helps many people stay motivated, as starting with the smaller debts allows you to eliminate some accounts completely and see real progress in a relatively short period of time. By the time you reach larger debts that will take longer to pay off, you’ll have a solid foundation in applying the method and more positive cash flow.
This method also simplifies the juggling many people in debt struggle with, since each account eliminated is one less creditor competing for the limited pool of available funds each month. While the momentum and simplification built into the snowball method help some people stay on track, this approach has one major weakness: it often leads to paying off lower-interest debts first, making paying off debt more expensive.
What is the Avalanche Method of Repaying Debt?
Like the snowball method, the so-called “avalanche method” involves tackling one debt at a time. However, rather than knocking out the smallest debt and then the next smallest (and so on), the avalanche approach focuses first on the debt with the highest interest rate. Paying down high-interest debt first saves money in the long run, since you’ll end up paying less interest.
The avalanche method isn’t for everyone, though. Managing debt can be stressful, and sometimes discouraging. While the snowball method offers relatively quick milestones, starting with the highest-interest debt may mean that it takes months, or even years, to pay off the first debt. While you’ll be cutting down your total long-term payments more with this method, it doesn’t always offer the clear sense of progress many people managing debt need to stay motivated.
The Best Plan for Managing Debt
The best plan for managing debt depends on a variety of factors, including how much debt you have, how much disposable income you have to devote to paying down debt, and what motivates you to stick with a plan and achieve your goal. For example, the savings associated with the avalanche method are purely theoretical unless you have the discipline and determination to see it through, even in the early days when you may find yourself working on what debt month after month after month.
Whether you choose one of these methods, another approach, or create your own hybrid system, the most important thing is that you have a clear plan with measurable goals. It’s also important to give yourself every advantage as you work toward better debt management. For example:
- Monitor your credit report and dispute inaccurate items to keep your credit score as high as possible—your credit score impacts more expenses than most people realize
- Know your consumer financial protection rights and assert them—part of responsible debt management is ensuring that you aren’t forced or tricked into paying more than you owe
- Consider pursuing FDCPA and FCRA claims where appropriate—when creditors, debt collectors and credit reporting agencies violate the law, you may be entitled to financial compensation that will help pay down your debt
When you commit to creating a stronger financial foundation for yourself and your family, give yourself every advantage, from choosing the best approach for you to knowing and enforcing your rights as you work toward zero balances.