You’re serious about getting out of debt: You stick meticulously to your budget, have cut frivolous spending and you’re ready to kick your payoff plan into gear.
Now, all that’s left is to figure out a strategy for knocking each debt out. And we have some ideas that could clarify your plan of attack.
Let’s look at payoff strategies for unsecured debts like credit card bills and personal loans, so you can pick the best plan for you.
Start by Making a Hit List
Before you pick a plan, get your bills organized.
- List All Your Unsecured Debts: Write down every credit card, personal loan or medical bill you have.
- Find the Right Numbers: For each bill, write down:
- How much money you still owe on it (aka, the “balance”).
- The interest rate. The higher the number, the more money that bill costs you over time.
Evaluate Your Options
Now that you’ve got your balances and interest rates, it should be pretty clear which debts are costing you the most now, and which will pile up as time goes on. With these numbers in mind, evaluate these three options:
- The Debt Avalanche: Saves the Most on Interest
Like an avalanche on a mountaintop, the “debt avalanche” is all about collapsing something big, fast. Here’s how to do it:
- Find the bill with the highest interest rate.
- Take all your budget surplus and put it towards your target bill.
- For all your other bills, maintain minimum payments.
- Repeat every month until your target bill has been eliminated.
- Once it’s clear, take all the money you were paying on that bill (the minimum plus your extra money) and start paying down the bill with the next highest interest rate.
- Keep going until you’re debt-free!
- The Debt Snowball: Builds Your Momentum
Start with a small handful of snow at the top of a hill — push it, and see how massive it gets by the time it reaches the bottom. The snowball debt payoff method helps you build confidence and momentum because it starts with small wins — which can quickly transform into major victories. Here’s how to get the ball rolling:
- Find the bill with the smallest amount owed (ignore interest rates for now)
- Take all your budget surplus and put it towards your target bill.
- Like the Avalanche, maintain minimum payments on your other accounts.
- Keep going until your first account is paid off, and then move thatn money to the next smallest bill.
- If some of your accounts have similar balances, prioritize the ones with the highest interest rates first.
- Lather, rinse and repeat until you’re debt-free!
- Debt Consolidation: Best for Debts Over $10,000
If you have so much debt that it’s overwhelming, debt consolidation can help make things much simpler.
- Get a free, no-obligation savings estimate.
- Call and talk to a Consolidation Specialist to get your personalized financial picture and options for paying off your balances.
- Learn how combining your separate, eligible bills can help you save 40% or more on monthly payments
- See why you could be debt-free in as little as 24-48 months
Plus, when you employ the logic of a self-driven approach — like the Avalanche or Snowball — in combination with debt consolidation, you could get debt-free even faster than any one method alone. Curious to learn more?