How to Choose the Right Debt Payoff Method for You

Paying off debt can be daunting. No matter what the amount, it can feel like a lot. We can’t help thinking about all the other things we could be doing with that money.

And then there’s interest.🙄 A few days ago, I was talking to a friend who said, “I’ve been trying to throw money at my credit card balance, but it’s so annoying! I always feel like it’s a good chunk of money but because of the interest, it feels like I barely make a dent.” And she’s not alone in feeling this way.

When this is your experience, it can be hard to stay motivated. And since motivation is such a huge factor in successfully paying off debt, it’s important to figure out what will keep you going strong. 

I’m going to break down 3 debt payoff methods, and my suggestion would be to choose a method based on what will motivate you to stay consistent and keep making progress. So, here we go!

1. Debt Snowball Method

How it works:

1. List out all of your debts from the smallest amount to the greatest.

2. Each month, put as much money as possible towards the smallest amount, while making the minimum payments on all other debts.

3. Once you’ve eliminated the smallest debt, move on and use the same system with the next smallest debt.

4. Continue this system until all debts are completely paid off.🎉

Here’s an example:

Is this method right for you?

The benefit to this method is that you start to experience wins (i.e. paying off entire debts) sooner because you’re starting with the smallest debt.

This method is great for you if, in order to get and stay motivated, you need to see progress as soon as possible. If eliminating that first debt will get you so hyped up that you’re excited to keep going, then the Snowball method could be right for you!

2. Debt Avalanche Method

How it works:

1. List out all of your debts from the smallest interest rate to the greatest.

2. Each month, put as much money as possible towards the debt with the highest interest rate, while making the minimum payments on all other debts.

3. Once you’ve eliminated the debt with the highest interest rate, move on and use the same system for the debt with the next highest interest rate.

4. Continue this system until all debts are completely paid off.🎉

Here’s an example:

Is this method right for you?

The great thing about the Debt Avalanche method is that you start by eliminating the debts that are costing you more because of how high their interest rates are. While any interest at all will cause your debt balance to keep increasing, the rate of increase at least slows down as you eliminate the high interest debts.

The Debt Avalanche method may be the right fit for you if you are someone who just can’t stand the idea of interest. If it pains you to realize how much interest is working against you and adding to your balance, you may be really motivated by this approach. 

The moment you finally see that credit card debt (at 15% interest) disappear, you’ll be on cloud nine. And that just might be the motivation you need to keep pushing forward with getting rid of the next debt.😉

3. Peace of Mind Method

So, I coined this name (and maybe even the method itself…I’ve never seen it suggested before). Just letting you know so you don’t go around bringing it up in conversation, expecting others to just know what you’re talking about lol.

Here’s how it works:

1. List out all of your debts from the one that stresses you out the most to the one that stresses you out the least.

2. Each month, put as much money as possible towards the debt that stresses you out the most, while making the minimum payments on all other debts.

3. Once you’ve eliminated the debt that causes you the most stress, move on and use the same system for the debt that’s next most stress-inducing.

4. Continue this system until all debts are completely paid off.🎉

Here’s an example:

Let’s say you’re most stressed out about student loan debt because you, like many people, are frustrated with how much your college education might end up costing you years and years later.

Let’s also say you’re least stressed about your car note because you feel you’ve put a pretty good dent in it so far.

Is this method right for you?

Our feelings and behaviors around money are, in many ways, emotionally and psychologically driven. The Peace of Mind method takes that into account, more so than numbers. If this strikes a chord with you, then this method could work well for you. 

Peace of mind is invaluable. If you’re absolutely done with losing sleep at night or feeling anxiety about your debt, maybe the most effective motivation for you is knowing that you’re making strides towards freedom from all of that. 

With the Peace of Mind method, as you see your most stressful debt amount disappearing, it’s like seeing the light at the end of the tunnel. And that may be just what you need to keep striving towards freedom.

Not to mention, the minute your most anxiety-inducing debt is out of your life, you’ll likely start feeling like a new person! You’ll enjoy feeling like you can breathe again, and that’ll be the thing that pushes you to keep going with eliminating any other debt.

Conclusion

Debt can be aggravating. No one enjoys owing money, especially when there’s interest attached. But debt can also be challenging to come out of if you’re not sure how to go about it.

Because motivation is a huge factor in paying off your debt, I suggest that you choose your debt payoff approach based on what strategy will keep you the most motivated. 

Between the Snowball, Avalanche, and Peace of Mind methods, hopefully, one of the strategies will give you just the motivation you need to stay the course and get debt out of your life. You got this!

Which debt payoff method do you think is right for you? Share in the comments below!

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