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How to Pay Off Debt - Avalanche, Snowball, or Snowflake?

by Delray Beach Real Estate Pros 01/13/2019

Like most Americans, you probably carry some debt. Reaching your dreams such as saving for a down payment or registering for a class takes longer when you're also paying on money you owe. Paying it off might seem daunting when the only way you know is to either make more money or reduce expenses. There are other ways, though, to tackle debt. Here are three.

The avalanche

When using the avalanche method to pay off debt, organize debt by the highest interest rate to the lowest. Any extra funds you can come up with go toward the debt with the highest interest rate until it is paid off. Then, move to the debt with the next highest interest rate. Take the whole payment amount of the first debt and add it to the payment of the second highest debt, paying it much more quickly. As each debt is paid, move to the next highest interest rate until all debt is paid. Proponents of this method believe your debt is paid off faster with the least amount of interest paid.

The Snowball

This popular method to pay off debt focuses on paying off the smallest debts first, then taking that payment and adding it to the payment for the next lowest debt. As you pay each debt, add that payment amount to the next smallest debt's payment. Each time you pay off one debt, the amount you can throw at the subsequent debt increases in the same way a snowball rolling down a hill gets bigger and bigger. Eventually, you can apply the final amount to your last debt and pay it off more quickly. Champions of this method believe paying off smaller debts first provides a psychological boost, encouraging you to stay on track. 

The snowflake

Both the avalanche method and the snowball method rely on your coming up with some extra cash in your monthly budget to throw at the first debt. But what if your budget is so tight that you can't add a regular amount to your monthly outgo? The snowflake method is different. Always pay minimums on all your debts, but whenever you have random cash, apply the extra to the smallest bill. So, if you sell something online or if a friend pays you back for dinner from a month ago, apply that extra to your smallest debt. Use birthday money, the five dollars you found in a coat pocket, or your tax refund to pay toward debt. Even though you’re not adding a regular amount to your debt payment, you can still reduce the balance and pay off your debt more quickly than by just making payments.

Reach your dreams

Once you’ve paid off your debt, continue to pay the final payment amount into a savings account toward a down payment or some other goal.

About the Author

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Delray Beach Real Estate Pros

With a 18-year track record of exceptional customer service, Diana Byrne specializes in single-family condos, oceanfront homes, golf course communities, and investment properties in Delray Beach, Highland Beach, and Boca Raton. A member of the National Association of Realtors® and the Realtors® Association of the Palm Beaches, she prides herself on knowing the market, providing personalized attention, and handling every phase of the transaction with the utmost professionalism. "Diana is a great Realtor® and I would highly recommend her," comments one of her previous clients online. "She has an extensive knowledge of the local market, immediately honed in on what I was looking for, and negotiated the deal well." Adds another satisfied customer who has already bought two properties through Diana: "She is a very patient, reliable business agent, with excellent ethics." Born and raised in Mansfield, Ohio, Diana graduated from Mount Vernon Nazarene University with a degree in Business Administration and holds a Real Estate Broker License and Realtor License from Florida's Gold Coast School of Real Estate. In 1998, she relocated to Wellington, Florida, and currently resides in Boca Raton, whereas during her off time, she enjoys traveling, reading, tennis, golf, boating, beach activities, and cooking. She also contributes to the community by helping to paint shelters for the disabled and distribute food and clothing for the homeless.