SafePath Advisors and Credit9 has begun flooding the market with debt consolidation and credit card relief offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following SafePath Advisors, Jackson Funding, Tiffany Funding, Nickel Advisors, Coral Funding, Neon Funding, Ladder Advisors (also known as Carina Advisors, Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
Making up your mind when it comes to paying off your debt is an accomplishment in itself. Debt elimination can be a long and rocky road. Success is only guaranteed to those who work with a strategy and avoid the minefield of debt relief scams, To pay off your debt, you first need to understand your debt. When you realize that its time to work towards financial freedom, you’ll find several strategies on the internet to pay off your debt. There are also many banks offering coronavirus credit relief and should be explored.
So, how do you know which one would work in your best interest? Which loans to pay off first? These are the questions that we’re going to help you answer in this article. We’ll also discuss the snowball vs. avalanche strategy shortly.
Understanding Your Debt
Once you’ve decided to get a hold of your finances and pay off your debt, you’ll need to assess the exact amount that you owe. Start with a comprehensive list of all the debts. List down each of your loans, along with the minimum monthly payment that goes towards each of them. Make sure you also mention the interest rate on all respective debts.
Once you’ve gathered all the information about your debt in one place, it will become easier for you to assess which loans to pay off first. However, when you’re making the decision, make sure you remember that you’ll be paying down that loan along with paying the minimum amount on all your other loans each month. So basically, the debt that you choose to pay off first will be the one you’ll be paying extra amount towards, along with your minimum payments.
You may have noticed that we keep emphasizing on continuing making minimum payments towards all your loans. It’s crucial that you do not ignore your other loans while paying off the targeted one because it will keep your credit score from suffering a hit as a consequence of a late or missed monthly payment.
Therefore, you can only pay an additional amount towards paying off loans if you’re able to make minimum payments towards all your other loans simultaneously. That’s the only effective way of paying off your debt. But how does one choose which debt to pay off first? Is it wise to target the largest debt first? Or would it be more practical to pay off smaller loans first? Let’s find out below as we breakdown the snowball vs. avalanche strategies.
Snowball vs. Avalanche
The two most common strategies to pay off debt are the snowball strategy and the debt avalanche strategy. Let’s study each of them in further detail!
The Snowball debt payment strategy
The debt snowball strategy is a method of paying off your debt, targeting your lowest debt first. So, along with paying minimum monthly payments towards all your loans, you’ll be contributing extra amount to your lowest loans. After paying off your lowest payable loan, you need to use the additional remaining amount to pay off the next smallest loan. With the snowball debt payment strategy, you continue this process until you’ve paid off all your loans. The key to this strategy is always targeting the lowest debt and then continuing the momentum by moving on to the next lowest.
The Avalanche Debt Payment Strategy
The other popular strategy to pay off your debt is the avalanche debt payment strategy. It’s similar to the snowball approach in terms of paying the minimum amount on all your loans each month. However, it has one significant difference. Instead of putting your extra money towards paying off your lowest loan, this strategy focuses on the highest debt first. By highest debt, we don’t mean the one with the maximum sum. The highest debt refers to the loan with the highest interest rate.
Once you’ve paid off your loan with the highest interest rate, you move onto the one with the next highest interest. Eventually, you gain momentum and pay off all your debts, including the smaller ones.
The Final Verdict
The main difference between Snowball vs. Avalanche strategies is the order in which you choose to pay off the different types of debt. If you target the lowest debts first, you’ll be choosing the snowball approach. One significant benefit of the snowball approach is the psychological boost that you get from achieving small victories. Smaller debts take a shorter time to be paid off, so you feel a sense of accomplishment as you gain momentum with this approach.
On the other hand, the debt avalanche strategy may be more cost-efficient than the snowball approach. As you pay off your debt with the highest interest rate first, you’ll save a lot of money in its interest rate in the long run. High-interest loans get expensive with the time. So, if you target them and eliminate them first, you save yourself from having to pay heavy interest.
Managing finances can be stressful and demotivating, that’s why the snowball approach can be helpful to feel a sense of achievement along the way. Whereas, if high-interest loans concern you the most, then the avalanche approach may be the best option. Both of these strategies bring success, so the answer lies in your preferences.
Whichever option you go with, consider consolidating your debt first. It can kickstart your journey towards debt elimination. As long as you’re paying the minimum amount on all your debts, you’re going the right way. Paying off debt can be a tedious and stressful process. That’s why you need to go with the option that resonates with you the most. As long as you’re working towards your goals and staying committed to your goals, nothing is impossible. We wish you the best of luck in your debt elimination journey!