Debt Snowball vs. Avalanche

A few days ago, I made a post on how you can track your spending with my favorite budgeting strategy: 

The 50/30/20 Rule. 

If you don’t know, the 50/30/20 Rule is where you essentially break down your income into 3 categories: 

  1. Needs – Things you can’t really live without and need to have which should be capped at 50% of your income.
  2. Savings – Everything that’s left over at the end of the month which should be a minimum 20% of your total monies. You can put this towards your financial goal.
  3. Wants – Things you can live without but would like to have which should be the rest of your monies at around 30%

By breaking your budget down like this, you can easily start chipping away at your DEATTHHH and save towards your financial future. 

But the question is: once we have some savings built up…

What do we do with it?

#1: Pay off your debt. 

Make a list of all the debt you have, from credit cards to student loans.

Once you’re done, there are two routes you can take here:

  1. Debt Avalanche: Organize your list of debt from highest interest rate to the lowest. Pay off the high-interest debt first so you pay less interest over time. Credit card debt with their 25%+ interest fees (DEAATTHHH) would be under here.
  2. Debt Snowball: Organize your list of debt from the lowest amount to the highest. Pay off the smallest debt first to give yourself momentum as you start settling your debts. Student loans would be under here.

Which one should you go with? Unfortunately the answer isn’t definitive. Pick the version that you feel will work the best for you but here are the advantages and disadvantages of each to help you make a decision.

Here’s why you may want to go for the Avalanche Method:

  • Cuts down how long it takes to get out of debt
  • You’ll pay less interest over the long-term
  • Good for budget-oriented people

Why you might choose the Snowball Method Instead:

If your debt is spread out across multiple credit cards and loans, I recommend the snowball method. Here’s why:

  • Helps you knock out smaller loans
  • Builds motivation and confidence by settling debts faster

But it doesn’t reduce interest as much as the avalanche method and can take longer to become debt-free. 

Either way, just choose the method that works best for you! If you’re not paying off the debt, then the interest rate or amount doesn’t matter as much!

Now, keep in mind YOU STILL HAVE TO PAY YOUR MONTHLY MINIMUMS across all debt before you choose either method. 

And oh yeah, STOP TAKING ON NEW DEBT. You can’t pay these off if you’re still spending more than you make. Cut out the taquitos, stop buying starbies, do something… ASAP. 

But it’s that easy. 

So easy, but many still f*ck it up. Pls don’t f*ck it up 🙂

“But Caleb, I don’t have any debt.”

You don’t? Really? 

Are you sure?

S**t, alright then. 

Good for you.

Well then that leads me to #2…

Which I’ll cover next time 😈

Taquitos, 

Caleb Hammer

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