At some point in our lives, we all have a tough time financially. If you’ve experienced this, you’re probably currently wondering ‘how do I get out of debt?’. Below we look at the two most common methods people use to get debt-free.
I’m going to start with debt avalanche because it makes the most sense, this is the method that will get you out of debt the fastest and cost you the least amount of money. If you have multiple debts that you can’t consolidate, and you should be paying down the amount with the highest interest rate the most. You should firstly pay the account minimums for all outstanding debts, the remaining money that you have should be put towards the debt with the highest interest rate. While this may seem simple, you will find that the hardest part is sticking to the plan and making the payment each week or month. You may also hear the debt avalanche method referred to as stacking or debt stacking.
The hardest part about stacking is feeling like the amount you owe isn’t decreasing. If you’re continually paying off the debt with the highest interest rate, the amount that you are paying is being eaten by interest more so than if you pay off any other obligation. This can be psychological straining, but it is the best method as choosing to pay any other debt first is only allowing that interest to increase the size of your debt with the most substantial interest rate.
If after trying the debt avalanche method, you find that psychological you don’t feel like you are getting anywhere to a put where you may quit trying, I would suggest considering the debt snowball method. This should always be a last resort as it will increase the time it takes you to repay your debt, and it will also increase the total amount that you pay.
The debt snowball strategy involves paying the smallest value debt first. This method ignores the most significant interest rate and looks for small wins that will help you build or snowball confidence and beat debt psychologically.