I recently wrote a post on my site about getting out of debt. In the post I recommend negotiating lower interest rates, figuring out exactly how much you can afford to pay each month, and finally attacking your debt using the “debt avalanche” method. This is the method that has always seemed the best to me but, I’m wondering if anyone has any other innovative methods of eliminating debt that they could share. What have you found as the fastest/cheapest/best way to pay off debt?
Debt snowball, baby!!
When you line up your debt smallest to largest and pay them off that way, something happens inside of you… It’s hard to explain, but I can attest to it.
That first small debt gets paid off, and you exhale a sigh of relief. Some of that oppressive weight has just drifted off from your back. You can stand a little straighter, your frown becomes a smirk, and your hollow eyes actually get a little life back in them.
You realize it’s possible. You CAN get out of debt.
…And that’s when all hell breaks loose. In a good way.
You find extra jobs, you try to get promoted at work, you start your own business - anything that will make you an extra buck to get that next debt paid off. And then the next one, and then the next one.
…Until you’ve suddenly paid off $50,000 in one year on a salary of $60,000… Crazy, but that’s my story. And that’s why I love the debt snowball.
Seeing regular progress motivates you to keep going. Had we used the avalanche method, we would have only paid off 3 or 4 loans so far, rather than the 12 or so that we’ve done.
We paid off almost $50k last year using the snowball: https://www.theirmoneygoals.com/how-we-paid-47k-in-2017. I don’t know if we would have stuck it out using the avalanche.
Agree about the debt snowball method. When we had 7 or 8 different student loans, each payoff felt like such a huge victory. It gave us the small wins early to be able to have bigger wins later on.
One tip that sometimes gets overlooked is to avoid monthly subscription services wherever possible. These can quickly add up and will eat away at money that can be paid towards debt.
I used to believe the debt avalanche was a no brainer, the math proves you will pay less overall interest. But as @LifeAndMyFinances mentions there is a strong psychological boost that comes with the debt snowball. In the end I think that boost is more powerful than the small amount of additional savings you’d get using the avalanche method.
As I wrote on your post, it pays to always review fees and charges, insurance premiums etc, basically anything that is an ongoing expense. Play the loyalty card, or threaten to go to a competitor. You don’t ask, you don’t get. The worse they can say is ‘No, sorry’.
Nice! Thanks for sharing your story! Nice blog as well.
Yeah, I guess psychology can go a looooooong way! Congrats on paying off your debt!
Great point! Those subscriptions can really add up.
Seems like everyone prefers the snowball method! Sheesh, I guess I’m underestimating the power of the perceived building momentum that the snowball method creates. I do have to say though that the savings won’t necessarily be small. If Greg (from the example on my blog) had used the snowball method, it would have cost him about $2,250 more dollars than the avalanche method. That’s not a gigantic amount of money but I think it’s significant savings. Thanks for the response!
Exactly, GREAT points!
This may be rudimentary, but back when I didn’t have much money and I wanted to pay my car loan off quickly, I just nickled and dimed the crap outta that thing until it went away. 10 bucks here, 20 bucks there. ANYTHING I could find no matter how big or small I applied to the loan. Eventually I was able to cut a 5 year loan down to only 2 years this way.
The snowball methods works more often than the avalanche method, because you get “wins” much faster than with the avalanche method. if you’re already $30,000 in debt, saving an extra $2,000 isn’t worth as much as paying off one of your loans in 6 months, another loan in 12 months, etc.
I think you hit most of them. Here is how I got out of debt (there is some overlap with your methods):
Get pissed. Make up your mind that you are no longer going to be someone who is broke.
Get organized. Make an honest accounting of what you owe and at what cost. Prioritize the highest cost (interest) debt and ATTACK it.
Refinance Your Debt. Get your debts to the lowest interest rates you can by transferring credit card debt and refinancing student loans and auto loans.
Throw every extra dollar you have at the debt. That’s right! I’ll say it again. ATTACK your debt. Every dollar counts and the battle is to get the debts to zero one-by-one as quickly as you can
Track Your Debt Obsessively. I tracked my debt balances daily in a spreadsheet. Each time you make the line go down it should build confidence you can do it again and again. Make that line go to zero at all costs. Celebrate each time you make it go downward.
Increase Your Income. Work hard to make yourself valuable. Find a new job if you cannot earn more at your current job. Get additional work. No work is beneath you when you are broke.
Don’t beat yourself up. Allow yourself to have fun. The past is the past. Use your debt destroying mission to your advantage to boost confidence that you can competently work a plan with focus and discipline.
Nice! I just recently read about a debt repayment strategy that is similar to that. It’s called the “snowflake method” (people want names for everything).
Great process. Thanks for sharing!
Thanks! Unfortunately, we’ve still got quite a way to go, but we’re just taking it one step at a time
lol, did not know that! I guess the name makes it easier to remember?
My favorite strategy is the “Convince wife this is a necessary evil to improve our future” plan. The great part about it is the accountability from having to have this conversation every two weeks when you each are paid!
In all seriousness though, debt snowball definitely got us started on our journey and opened my eyes to the FIRE community. From there, we took closer looks at interest rates and sort of created our own hybrid plan for investing while still paying down debt.
Yep, it seems like doing whatever works for your situation best is the right way to go. There is no perfect method for everyone.