Handling debt can be a herculean task, however, when you are able to follow some outstanding measures, then it is always possible to take charge of your financial obligations. There are two main techniques commonly used in the United States in paying off debt; the Snowball technique and the Avalanche technique.

Since people have many kinds of debts, the best strategy to pay those debts may be important. While implementing the Snowball and Avalanche methodologies, you will get numerous advantages and can learn how to fight the utmost enemy — the debt. In the lines below, I shall provide more information on these methodologies; consequently, elucidating on their operating mechanisms as well as benefits.

Understanding the snowball method

The Snowball method for repayment is centered on the eradication of small balances while making minimum payment on the large ones. This is an encouraging method because you are able to note improvement as smaller obligations are quickly settled. That is why small victories can help and make it easier to wake up in the morning and face large balances.

Specifically, you begin by totaling up all the debts, then order them in ascending order of the value. You then turn it as an obligation to pay as much as you can toward the smallest credit while making the minimum payments toward the rest. After paying off the smallest balance, a person proceeds to the next, using the money from the settled account to pay the next one.

How can the snowden’s snowball strategy be put into action ?

To build up the structure of the Snowball method, begin by creating a list of all your balances accompanied by their minimum payment. Arrange them in ascending order of their number. The written record brings you a perfect perspective of the overall development so it helps in motivating you.

Next, deduct whatever balance you have remaining to the smallest debt you have. Invest as much as you can but make sure you pay the least amount possible as to other commitments. In this sense, one of them aims to eliminate the primary balance within a short span of time in order to pay for the subsequent debts.

Hence, as you pay off the next debt list down, apply the same to the next, and as such. The feeling that comes with eliminating one or the other debt motivates and encourages the individual to continue to pay back what he or she owes.

Advantages and disadvantages of snowball method

Below are some of the advantages of the Snowball strategy. The most apparent psychological victory that one gets to experience is the feeling of debts which come ticking off, one by one. This Positive Reinforcement can help you to stay disciplined as well as focused.

Still, the Snowball method is not without flaws as shall be seen. Overlooking interest rates might lead to the agreement of paying more in the long-term. Prioritized payment of close debts means that probably very large debts with high interest expense will take long to be cleared, and therefore the overall amount repaid in terms of interest will be high.

The avalanche approach explained

Avalanche in contrast is used to limit the amount that is paid in interest by eliminating the highest interest debts first. This can be advantageous in the long run since it zeroes in on the pricey type of debt first.

In order to apply the Avalanche method, start with the writing of debts, but instead of their ordering according to balance, do it in accordance with interest rates. To consolidate the debt, begin by paying the maximum amount that you can on the credit card that has the highest interest rate while paying the other cards the minimum amount.

Continue to the next while ranking the debts based on their interest rates to find the lowest interest to pay on the debt. If you center your strategy on paying more attention to the interest rates, it is possible to decrease the entire interest amount that has to be paid and can even get out of debt earlier if you don’t stray from the set plan.

Advantages and disadvantages of avalanche method

Interest costs are considered one of the major benefits of Avalanche strategy. Following highly relived debts help in decreasing the total cost of debts through early repayments hence expediting the terms of debts.

However, this strategy is not very motivating as the interest group debts are usually bigger and take longest to be paid. Due to the fact, which exists in the Snowball method, that there are no small and fast victories some individuals could may feel unsatisfied.

Though the Avalanche technique is impartial and flexible, it is suitable for debt-savvy people who are willing to stick to minimum payments and look forward to paying the lowest prices for her credit over the years to come.