Digging Out of Debt: Different “Shovels” for Different People

by Jessica Sommerfield · 1 comment


Debt is a source of financial concern and anxiety for many people – and, as a nation, we have a lot of it. In the U.S., the average household carries over $16,000 in credit card debt alone! Everyone wants to get out of debt, but it’s so much easier to have wishful thoughts about being debt free than to start doing something about it, right?

If you’re buried in debt, the first recommendation is to concentrate on not letting the hole get any bigger. Get your spending under control, close credit card accounts that are consistent pitfalls for you, and even go on a spending freeze, if need be.

But then there’s the debt you already have. There are numerous methods and strategies for digging out of debt, and each guru swears by their own system. I’m not here to give you a one-size-fits-all solution, but rather to point out that when it comes to digging out of debt, there are different “shovels” for different people. Here’s an overview of some of the most common debt repayment methods and how they cater to different personality types, motivation points, and even level of debt.

The Debt Snowball: a Psychological Boost and Motivation

Some people have a hard time getting the ball rolling when it comes to debt repayment. If this is you, the debt snowball might be the best method, at least to start with. The basic concept is to keep paying the minimum balance on all your debts, but concentrate all your extra funds on your smallest-sized debt. Once you’ve paid this one off, the payment and any extra are piled on to the next smallest debt, etc.

The key advantage of the debt snowball is psychological – studies suggest that we’re motivated by the portion of the balance we pay off, regardless of the dollar amount. It tends to work best with smaller accounts such as retail credit cards since it’s easier to quickly pay off several and maximize its motivating power.

The Debt Avalanche or Ladder Method: For the Savings-Minded

When you sit down and crunch the numbers, snowballing isn’t the best method for keeping your debt from growing through compound interest. The debt snowball is more about psychology; the debt avalanche — or ladder method, as some call it – is a better way to maximize your savings while you pay off debt.

Instead of choosing your smallest debt to tackle first, the avalanche/ladder method chooses the debt with the highest interest, regardless of size. By paying this one off first, you keep more money in your own pocket that can be used to pay off even more debt. One of the downsides of this method is that it may take quite a bit longer to pay off each debt since your highest interest rate might also be attached to your largest debt. But, if you’re patient and savings-minded, this is the way to go.

The Debt Blizzard/Combination Method: Motivation Plus Savings

This method starts with the debt snowball to kick-start motivation but then switches to the ladder method to increase savings. If you’re someone who needs a little boost but wants to tackle that high-interest rate debt, this might be your shovel. It tends to work best with larger debts like student loans, since hey – you’re going to be paying it off for a long time, anyway, right?

Balance Transfer Cards

This isn’t so much a method as a strategy. If you have several high-interest credit cards, consolidating them with a 0% for 12-months (or more) balance transfer credit card offer could immediately help you avoid interest and pay your debt off faster. It also makes things easier with one payment to keep track off versus several. The key to this strategy is to shop around for the best balance transfer deal and aim for paying the debt off before the promotional period expires.

Paying More Than The Minimum

There are many, many more ways to tackle deep debt, but at the most basic level, you should always try to pay more than the minimum payment on at least one card. Every little bit of extra money you add, whether it’s $20 or $200, reduces the lifetime of your debt and the amount of interest you’ll pay.

So, for digging out of debt, what’s your tool of choice?

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