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Motivational Methods for Paying Off Debt
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Lyndsey (She/Her)
Financial Educator
Posted June 24, 2021
Are you on a mission to pay off your debt, but are feeling a lack of accomplishment? Paying down debt can be a long, gruesome process that can cause us to become unmotivated. Sometimes, all it takes is finding a method that aligns with your personality and goals to be successful. Stay the course by trying out one of these inspiring methods to paying off your debt!
The avalanche method
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The avalanche method is great for those looking to pay off high-interest rate debts quickly and save the most money in the long run. To utilize this method, begin by making the minimum payments to all of your debts. Next, apply any extra money from your budget to the debt with the highest interest rate. Once that debt is paid off, apply the funds from that former payment to the next highest rate debt.

For example, let’s consider this situation given by

     - Card #1: $5,000 at 20% APR
     - Card #2: $3,000 at 18% APR
     - Card #3: $8,000 at 15% APR

If only minimum payments are made to these debts, a person could end up paying $9,000 or more in interest alone. It would also take them almost 12 years to pay off their debt.

Alternately, if a person uses the avalanche method, they would save thousands of dollars in interest AND become debt free sooner. They would begin by paying their minimum payments, with the exception of applying any extra money in their budget toward the $5,000 debt (since it has the highest interest rate). Once that is paid off, they would add the money they were applying toward the first card’s balance to the $3,000 card’s minimum payment (since it has the next highest interest rate.) Once that card is paid off, they’d apply the former payment amounts to the final card’s monthly payments. Depending on how much you pay, a person using this method could save $3,000 on interest from credit card #1 alone, and pay off the $5,000 balance in 12 months vs. 12 years!
Why it works
The reason the avalanche method works is because it lessens the amount you are paying in compound interest. Compounding interest is the interest that is calculated and added to your balance, based on the amount of principal plus interest from previous cycles. This “new interest charged on previously charged interest + principal” can get out of hand very quickly, so paying down debt as soon as possible is arguably the best way to regain control of your seemingly “ever-growing” balance. Although it can take time to see the benefits, tracking your balance can be a great motivator, especially when the amount you are saving is in the thousands!
The snowball method
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The snowball method is great for list-makers who want to quickly decrease their number of debts. To employ this method, pay the monthly minimum payment to all of your debts. However, apply any extra money from your budget to the debt with the smallest balance. Once that debt is paid off, apply the former funds to the next smallest debt’s balance.

For example, let’s consider this financial situation:

     - Card #1: $500 at 15% APR
     - Personal loan: $2,500 at 6.03% APR
     - Card #2: $5,000 at 10% APR

If this person were to implement the snowball method, they would first make minimum payments to all of their debts. Then, they would pay any extra money they have in their budget toward the $500 debt. Once card #1 is paid off, they would apply the former debt’s payments toward the $2,500 debt (since it has the next lowest balance.)  Once the personal loan is paid, its payment would then be applied added to card #2’s monthly payment until it is paid off.
Why it works
Although this method doesn’t save quite as much money as the avalanche method, it still expedites repayment. It also gives you the satisfaction of decreasing your overall number of debts. Many people struggle with managing multiple payments at once, and this method helps to rid them of obligations with small balances. This can bring peace to those overwhelmed by the sheer number of debts they have, allowing them to streamline their budget. After all, saying you have only 3 credit cards left to pay sounds a lot less overwhelming than 10. This can also free up additional money in your budget more quickly by knocking out some of the monthly obligations.
Personalize paying off your debt
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Deciding which method to proceed with or how to pay off your debt is completely up to you. At the end of the day, no one knows your personality and money management habits better than you. Many people have even combined some of these methods to successfully pay off debt. Either way, take the first step, stay the course, and watch your savings grow as you grow closer toward financial freedom.
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