The Snowball method is where you pick the debt with the smallest balance. You make minimum payments on all of your other debts and put every penny you can manage on the smallest debt to pay it off fast. Then when that debt is paid off, you take the payment from that debt and start applying it to the next largest debt.
The theory behind this method is that seeing quick wins will keep you motivated. You might pay a little more in interest overall but the motivation of seeing a “win” keeps you going.
The Avalanche method works on paying off the debt with the highest interest rate first.
The DOLP method (from David Bach’s Automatic Millionaire books) says to calculate each of your debts by the number of months it would take to pay it off using just the minimum payment. THEN, pick the debt with the lowest number of months and apply every extra penny to paying that debt off as soon as possible.
Basically whatever will keep you motivated and moving forward is the method to choose to start with. You can switch methods at any time. Last year I used the Snowball method to wipe out 4 of my 7 debts. I like quick successes to keep me motivated and going toward my goal.
I have used the snowball method as well because getting debts smaller debts out of the way first creates positive momentum for me. Then, on to the next and the next. Yes, I’m concerned about the interest rate but not as much as knocking some things off the board.
Aww ok, what about when you get the secured card to buy things on credit and pay if off on the due date… for example if I get qualified Dr a secured card that has $1000 loaded on there and I can only spend 30% ($300) when it’s time to pay that back, do I just pay the $300 or would I have to pay the whole $1000 back?
@swayla.monche If you have a secured card that has a $1000 limit and you spend $300 of that limit, you now only have $700 available for spending. When the bill comes you pay back the $300 that sets your available spending limit back to $1000. Does that answer your question?
Nevermind someone already did this. Could someone describe these 2 methods to me. thanks
Debt Avalanche method: Saves you money in interest in the long run.
List your debts with remaining balance and interest rate.
Pay the minimum payment on all your debts except for the one with the highest interest rate. Put all your extra money against this debt.
Once that debt is paid off, use that payment and any extra money on the debt with the next highest interest rate.
Debt Snowball method: Gives people a faster feeling of accomplishment
List your debts with the lowest balance first to the debt with the highest balance.
Pay minimum payments on all your debts except the debt with the lowest balance. Put all your extra money against this debt.
When that debt is paid off, use that payment $ plus any extra money against the debt with the next highest balance.
DOLP: Done on Last Payment - A method proposed by financial author David Bach
List your debts with current balance and minimum monthly payment amounts.
Now divide your balance by the minimum payment amount to get the number of months until that debt is scheduled to be paid off. i.e. $1000 balance with a $200 minimum monthly payment = 1000/200 = 5 months.
Throw any extra money against the debt with the smallest DOLP number to pay it off faster.
I have used a combination of the Snowball (to get me started and feeling accomplished) and the DOLP methods to tackle my debt. Basically whatever will keep you motivated and moving forward is the method to choose to start with. You can switch methods at any time. I like quick successes to keep me motivated and going toward my goal.
Thanks for explaining that. I didn’t realize I was using the Avalanche method until I saw this. I always went with paying highest interest card first regardless of amount owed. Now, all debts paid except student loans. Since mine are not in one combined payment, I will apply the largest amount of payment to the highest interest loan. I do have some that were not on the US government forbearance program. So now is a good time to pay more on them.
