a. Debt snowball method
The debt snowball method involves paying off debts in order of smallest to largest balance, regardless of the interest rate. This method works by providing a psychological boost, as individuals can quickly see progress being made as they eliminate smaller debts. To use the debt snowball method, follow these steps:
b. Debt avalanche method
- List all credit card debts from smallest to largest balance.
- Make minimum payments on all debts except the smallest.
- Put any extra money towards the smallest debt until it is paid off.
- Once the smallest debt is eliminated, move on to the next smallest debt and repeat the process.
The debt avalanche method focuses on paying off debts with the highest interest rates first. This approach can save individuals a significant amount of money in interest charges over time. To use the debt avalanche method, follow these steps:
- List all credit card debts in order of highest to lowest interest rate.
- Make minimum payments on all debts except the one with the highest interest rate.
- Put any extra money towards the debt with the highest interest rate until it is paid off.
- Once the highest interest rate debt is eliminated, move on to the debt with the next highest interest rate and repeat the process.