When it comes to paying off debt there’s no question that there’s one person who is king: Dave Ramsey. Over the years Dave has helped people pay off millions of dollars worth of debt. When it comes down to it Dave has two methods…
The Debt Avalanche
The first method is the one you could probably come up with yourself - and the one you’d prefer if you’re more of a technical person. The Debt Avalanche has you pay off your debts from the highest interest rate down to the lowest. The benefits of this are obvious: in the long run you end up paying less interest. The downside? Depending on how your debts are structured you may not actually pay off a full loan for a while. This can lead you to feel like you’re stuck in a never-ending debt hole. It’s hard to make financial sacrifices day after day without seeing a reward. This leads us to the second method…
The Debt Snowball
The Debt Snowball method focuses on you as a person. In this method you pay off your debts in order from lowest to highest balance - regardless of the interest rate. This can clearly lead to you paying more money on interest. The benefit? The dopamine-fueled rewards you get when you pay off loan after loan will help you stick to paying off your debt in the long run!
So - which method should you use?
To answer that question you need to be honest with yourself. If you decide to go with the Debt Avalanche method, but then very quickly lose interest and end up kicking your payoff date down the road - then whatever money you would have saved by paying off the higher interest rate loans first becomes very quickly irrelevant! Choose the method that best suits you. If the Debt Snowball method will make you pay off your loans faster - then that’s the method that will save you the most money!
コメント