Debt Payoff Strategies

Are you having a hard time choosing which debts to pay off first? Trust me, I know how you feel. One of the first steps in your debt payoff journey is creating a plan.

There are many different debt payoff strategies, no one is better than the next. The real key is choosing a plan that works for you, and being disciplined and consistent. If you fall off track, that's okay, just adjust and keep moving forward!

Below, I've outlined some of the strategies that I have seen and used myself.

The Snowball Method

The snowball method is one of the most popular debt payoff methods. It is great for creating quick wins, which give you a feeling of gratification and motivation. To create a debt snowball, list your debts by balance, smallest to largest. Focus on paying the debts with the smallest balances first. Once a debt is paid off, roll it's minimum payment into your "snowball" and apply it to the next debt. In the example below, once "Credit Card #1" is paid off, you would then add the $75 minimum payment to your payment on "Credit Card #2" for a total of $175 ($75 +$100). Once "Credit Card #2" is paid off, you would then roll that $175 into the 401K loan minimum payment for a total of $350 ($175+$175).

The Avalanche Method

To create a "debt avalanche," list your debts by interest rate from highest to lowest. Then, focus on paying of the debt with the highest interest rate first. This method saves the most money (in interest) in the long-run, but can be difficult because you might not see any "quick" wins.

Other Strategies

Highest Payment

Another strategy that I have seen, and used personally, is the "highest payment" method. While I wouldn't use this for larger debts (like a mortgage), I do think it can be a great method for smaller consumer debts. This method is great for freeing up larger amounts of money in your budget. I haven't used this method in isolation. Rather, I personally use the debt snowball method, and use the "highest payment" strategy to decide between debts with balances that are similar.

Emotional Weight

This is another strategy that might not be used in isolation, but can be a great deciding factor when choosing what debt to tackle first. To use this strategy, attack a debt that makes you FEEL something strongly. Would you feel significant happiness if you pay off your car? Or does that medical bill in collections cause you SO MUCH ANGER that you know you would feel lighter once you pay it off? Choosing to pay off a debt that carries a lot of emotional weight can be great for your mindset and help to build some momentum in your debt payoff journey.

Final Thoughts

Despite what some gurus might say, please remember, there is no ONE right way to pay off your debt. Paying off debt, making progress, and sticking to a plan is what is going to work. So choose a strategy, or combination of strategies, that is going to work for you and your family. And got this!


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