At certain levels, debt management can become overwhelming. You have credit cards, past-due dates, amounts owed, and interest rates. When the progress of your business appears to be slow, you keep running in circles, stuck in paying your debts. In this situation, you may feel it is futile to tread water. However, various ingenious ways exist to get rid of your debts much earlier. The two most popular are the Debt Snowball and Debt Avalanche. These are simple, motivating methods to follow and provide a clear path out of debt to regain your financial life. In this article, we will look into the specifics of both methods. This blog will take you through everything you need to know about these two methods.

Introduction to Debt Snowball Method?

The Snowball method of debt involves making minimum payments of debts with the lowest interest rates and concentrating on the other lowest debt available until you've paid all debts off completely.  The basic premise is to pay the smallest in full and then go back and see what the second smallest is. And so it goes. By using this method, you are allowed to pay the full amount of one debt, and you get more cash to pay off the next bill. This makes it clear why it has such a name, as it is similar to a snowball rolling downhill, gathering more snow and momentum.

The working of the Debt Snowball Method has been simplified to help you-

1. Develop an understanding: List all your debts with their balances, interest rates, and minimum payments.
2. Target the smallest balance: Minimum repayment on the balance while pushing any remaining amount towards the smallest balance.
3. Eradicate the smallest debt: Repay the smallest debt in full and move on to the next smallest. Repeat! 
4. Snowball effect: By focusing on the paid-off debt, you will have more cash flow available to attack the next debt; this momentum will help you pay your debts off faster.

Under the debt snowball approach:

1. Begin with the credit card which has the lowest interest rate. Make the minimum payments on the other debts, and any other payments should go towards the credit card balance.
2. Once the credit card payment is cleared, focus on another debt with the second-lowest interest rate.

Advantages of This Method

Quick success: Starting with smaller debts, paying them off can provide both a sense of accomplishment and the motivation to charge into the next one.

Psychological boost: The satisfaction of seeing debts disappear brings a powerful psychological boost that will urge you to persevere.

Simplicity: The method is easy to understand and does not require difficult calculations or a precise understanding of interest rates.

Disadvantages of This Method

May cost more in interest: The one area where the method may backfire on you is if your smallest debt happens to have a very high interest rate. In this case, you are bound to lose to other alternatives, such as the avalanche method, by paying more in the end.

Slow pay-off: This often happens that, while working on small debts, the larger debts will stay for some more time in the long run, thus taking a longer time to eventually pay off the debts totally.

Introduction to the Debt Avalanche Method?

As per the Debt Avalanche method, one should first pay off the amount that has the highest interest rate regardless of how much one owes against it. However, if you start with high-interest debts, you'll spend less on interest over time, thus paying off the debt quicker overall. It is a much more concrete and logic based way of planning in order to achieve the desired goal of reducing interest cost.

The Working of the Debt Avalanche Method has been simplified to help you-

1. List all debts: Just like the debt snowball method, start with a list of all your debts.
2. Prioritize the highest rate: To begin the process, keep the minimum payment on every loan except the one with the highest interest rate. Allocate additional repayments of high-interest loans first.
3. Pay off one of the repayments with the highest interest: As soon as the high-interest debt hits control, proceed to tackle the loan with next highest interest, which is due.
4. The avalanche effect: By settling these high-risk borrowing amounts one after the other, one becomes able to inject their spare assets toward the other borrowing amoun,t which will help them pay off the entire borrowing amount rapidly.

Under the debt avalanche approach:

1. Begin with the credit card which has the highest interest rate.
2. Once the credit card payment is cleared, focus on the debt which has the second highest interest rate.
Advantages of the Debt Avalanche Method:

Lowers the interest expenses: Targeting your highest-interest debt will help you cut down your interest payments over time.
Rapid debt repayment: The total time necessary to service the debt will be shortened because you will begin by repaying the most burdening debts first.
Reduced future costs: By getting rid of high-interest-bearing debts, the savings that would have accrued to the payments of interest will be created.

Cons of Debt Avalanche Method

Delayed gratification: The first debt may take a long time to be completely paid off, thus creating discouragement, especially if the amount is high.
Demands discipline: The method is not psychologically as rewarding compared to debt snowball and may put you off if you don't see considerable progress soonest.

Debt Snowball vs. Debt Avalanche: Which One Should You Choose?

Snowball and debt avalanche methods have both pros and cons, and you should choose between the two by looking at your preferences and financial targets. Here is a breakdown of deciding what is best for you:

Opt for a debt snowball method if:

You need motivation: You get motivated by seeing positive change, so you might feel better motivated to continue with the debt snowball method.
You like the small wins: The method will allow you to have a sense of accomplishment and rapid advancement.
You have psychological roadblocks: If the thought of going after a large debt creates overwhelming anxiety, then you can reduce your stress by first conquering the smaller ones.

Choose the Debt Avalanche Method If:

You wish to pay less accruing interest: ‘Pay less interest’ is arguably the key phrase when dealing with loans. In this case, the debt avalanche method is the best approach to use if your intention is to pay the least total amount in order to wind up all the debts.

You have the patience: When you can bear the wait without losing the hunger to work, then it’s advisable to pay attention to the most burdensome debts, in this case, the high-interest ones, so that in the future you have less debt remaining.

You struggle with multiple high-interest debts: Having several high-cost debts is a bother. But with the debt avalanche method, you will be able to settle these fast, and the total interest in the remaining amounts will be low.

Final Thoughts

The debt snowball and the debt avalanche are tested and tried techniques that speed up the repayment of debt. What is most important is that you opt for the one method you connect with your psychology and fits your financial thinking. Whether it is for motivation purposes in paying debts that you want to pay first with the debt snowball quarters or applying the debt avalanche technique that saves your interest, take action. The essentials are consistency and commitment; nothing counts more than these on the journey of debt repayment.