Which Accelerated Debt Payoff Strategy is Right for you?

With the new year hitting, it seems like every debt relief company is advertising its own magic formula to pay off your debts for you. If you are unsure of the best method to use for your accelerated debt payoff, then today’s post is for you! We are going to look at three of the most common accelerated debt payoff strategies and dive in to see who they will work best for.

Stay positive!

For many people, looking at your debts can be overwhelming. While you are working on this plan, make sure you are being kind to yourself. Being in debt does not mean you are a failure, a bad person, bad with money, or worthless. 

Debt is just debt. It has no impact on your value as a human being. 

The people in your life love you the same, you are still a special and unique person. Keep reminding yourself of this fact as you are making an accelerated debt payoff plan. If you need an extra voice to keep you feeling positive, reach out to a trusted friend or family member and ask them for a little extra encouragement and positivity right now.  

Step One: Identify all of your debt

This can be the hardest part for many people. When dealing with debt, many people take the Ostrich strategy and just put their head in the sand and ignore it. That may make you feel better, but it is not going to make your debt go away. The only way to do that is to identify it all, and make a plan!

Using a worksheet like this, list all of the debts you have.   

You will want to include the name of the debt, current balance, interest rate, monthly payment, and estimated payoff date making the minimum payment. 

Most companies will give you the estimated payoff date in your online account. It is usually in the same area where they show the current balance and payment. If they do not give you that information, you can calculate it yourself using a calculator like this.  

If this step has been really challenging for you, then once you have your list together, take a break. Adding extra stress to your life right now is not worth it. You did a hard task, now take some of the pressure off for the rest of the day or week and then come back to the planning stage. It’s ok to take a break. 

Step Two: Pick a Strategy

The three most common strategies you hear for debt repayment are debt snowball, debt avalanche, and debt consolidation. Here are the basics of each method and who it would work best for. 

For any of these methods, while you are focusing on the highest priority debts first, make sure you are still paying the minimum payment on all of your debts so they do not go into collections or have a negative effect on your credit. 

Debt Snowball

The debt snowball strategy speeds up the total payoff time for debts by paying off your debts based on the current balance. To make this strategy work for you, re-order your debts from the list above with the smallest balance debt listed first. 

List the minimum payment for the first, lowest balance debt, plus any extra payments you are making to pay down your debt faster. Use the calculator to figure out how long it will take you to pay off this debt. Once this first debt is paid off, then take the minimum payment for debt #1, plus the extra payments you are making, and add it into the minimum payment for debt # 2 on the list. 

As you pay off each debt, re-calculate the payoff timeframe for the next one on the list using the repayment calculator and watch this debt disappear. 

The debt snowball method will work best for someone who has many loans of varying sizes and will gain motivation from paying off the small ones quickly so you can focus on the larger debts. 

Debt Avalanche

The debt avalanche strategy reduces the amount of interest paid by paying off your debts based on the interest rate that is being charged. To make this strategy work for you, re-order your debts from the list above with the highest interest rate listed first.

 List the minimum payment for the first, highest interest rate debt, plus any extra payments you are making to pay down your debt faster. Use the calculator to figure out how long it will take you to pay off this debt. Once this first debt is paid off, then take the minimum payment for debt #1, plus the extra payments you are making, and add it into the minimum payment for debt # 2 on the list. 

As you pay off each debt, re-calculate the payoff timeframe for the next one on the list using the repayment calculator and watch this debt disappear. 

The debt avalanche payoff strategy will work best for someone who has a few debts at very high-interest rates and others at a moderate or low-interest rate. Paying off those initial high-interest rate debts will supercharge the overall debt repayment and mean that you are paying less interest during the accelerated debt payoff period. 

Debt Consolidation

Debt Consolidation means taking multiple existing debts and consolidating them into one larger loan. There are two common methods that people use:

1. Consolidating multiple credit cards into one short-term 0% interest on Balance Transfers new credit card.
2. Applying for a personal loan or unsecured loan that would pay off several smaller debts at a lower interest rate or longer payoff term. 

Debt Consolidation would work best for someone who had multiple small credit card and loan balances at a high-interest rate. This person will need to have credit in the ok to good range to be able to qualify for either a new credit card with a 0% balance transfer rate or a personal loan with a banking institution at a rate that is less than they currently pay.  

Often this strategy is used in conjunction with a Debt Snowball or Debt Avalanche to then ensure that all of the debts, including the new consolidation debt, are paid off in the proper order. 

One key to ensuring this will work is to make sure that you can pay off the 0% balance transfer amount before the promotional period is over. Once the promotional rate expires, then you are back in the same position you were before balancing a 25% or greater rate. 

Step Three: Implement the Strategy

This is where you start making payments and trying to find more money in your budget to increase those monthly payments. Remember, that small amounts can make big impacts, so look for ways to save $20-$50 a month and use that extra money to make larger payments on your debts. 

If you don’t have one set up, start a visual debt repayment tracker like this.  Being able to see your progress will help keep you motivated on this debt journey.

You can also work on finding areas in your budget to mindfully reduce so you can throw additional money at your debts while you are getting started. This initial boost will give you more motivation to keep going and get those debts paid off! 

Keep in mind that both the Debt Avalanche and Debt Snowball are great strategies to paying off debts faster than making the minimum payments on debts in random order. Both will save you money either by shortening the payoff time or reducing the interest on the debts. 

Don’t get stuck in decision paralysis about which method to choose. Decide which feels correct for your situation and start on the payoff plan! 

What accelerated debt payoff strategy are you using or have used in the past? Share your success stories or questions in the comments below or over on our Instagram page! 

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