Choosing a Debt Payoff Strategy
The two most popular ways to pay off multiple debts are the Debt Snowball and Debt Avalanche methods. Both require you to pay the minimum payment on every debt, and then direct all your extra cash to a single debt at a time.
1. Debt Avalanche (Math Based)
The **Debt Avalanche** method involves paying off the debt with the **highest interest rate** first. This is mathematically the fastest and cheapest way to get out of debt.
- Pros: Saves the most money in interest; finishes the fastest.
- Cons: If your highest rate debt is large, it may take months to "see" progress.
2. Debt Snowball (Psychology Based)
The **Debt Snowball** method involves paying off the **smallest balance** first. This builds momentum and provides emotional wins that keep you motivated.
- Pros: Quick wins; reduces number of bills fast; highly motivating.
- Cons: You will pay more in total interest over time.
Key Debt Stats (USA)
- Average Credit Card APR: ~20.9% (as of 2024)
- Average Household Debt: Over $100,000 (including mortgages/student loans)
- Delinquency Rate: Increasing for credit card and auto loans.