how to get out of debt

Paying Down Debt Using Snowball and Avalanche Method

As black women functioning in a system that sometimes feels set up to frustrate us, taking out loans is one of the ways we keep our ship floating. Whether you took out a loan for your business or yourself (even if it was to sponsor that girl's trip *wink*), paying it back can become a burden.  

So, we are here to tell you it doesn't have to be oppressive! The Snowball and Avalanche methods of paying back debts have been used for decades because of their effectiveness. Regardless of the type of loan you took out (credit cards, hard loans, etc.) or the size of the debt you're in, these two methods of paying them back will help you take the weight off.  

The Snowball Method

Research has shown that black women have higher levels of stress that affect everyday life and decision-making than women of other races. The weight of the world we almost always carry on our shoulders- including debt- puts us in that position.  

Some feel paralyzed by the pressure, so they ignore the problem until it grows out of control. The Snowball method might be perfect if you need help figuring out how to start paying off your debts. It involves paying off your debts from the smallest amount to the largest regardless of the interest rate attached.  

As you pay off your debt, more money will be available toward paying the next one, creating a snowball effect as you progress.

How to Use the Snowball Method  

First, list all your debts and write down their balances (interest rates don't matter). Then order the debts from the smallest to the largest based on their balance and make the minimum payments on all the debts except the smallest one.

Figure out how much money you can free up consistently each month (this is where a budget comes in handy). Pay as much as your budget allows and the minimum payment on your lowest balance loan until it is paid off.

Once the first is done, move on to the next smallest debt, rinse, and repeat until you've cleared everything. 

What are the advantages of paying down debt using this method?  

You Stay Motivated 

The snowball method is an inspiring way to pay off your debt because of the from paying off a balance. The fulfillment gives you momentum to clear the next one.  

This is very helpful if you feel overwhelmed by the load of your debt; paying off the smaller ones first actually helps to offset some of the weight. A win is a win, even if it's a small one.

It's Not Complicated

Using the snowball method doesn't require over-complicated formulas or spreadsheets. Simply list all the debts you owe and arrange them from the lowest to the highest.  

Once you start paying it off, tick the ones you have paid off and plan for the next one. It is like creating a to-do list, but let's call this your debt list. The simplicity of the snowball method makes it easy to stick to.  

Cons of using the Snowball method  

The snowball method does not consider interest rates, so you may pay more interest rates as you climb up your list. Another thing to consider is that this method could take longer to become debt-free because you're more focused on the smaller debts first.  

If you have an enormous debt load, the snowball method might be discouraging because, initially, it will look like you are not making progress.  

DOWNLOAD A SNOWBALL DEBT TRACKER

Avalanche Method  

The Avalanche debt repayment method is the common alternative to the Snowball method. It involves paying down your debt from the highest interest rate to the lowest rate, regardless of the balance. It is the best method for people who want to save money on interest charges.  

This method can give you financial freedom faster because you chip away at money-draining interest rates.  

How to Use the Avalanche Method

First, list all your debts, including all the interest rates and balances, then order them from the loans with the highest interest rates to the ones with the lowest interest rates.

Like the Snowball method, figure out as much as your budget allows you to consistently pay on the highest interest rate over the minimum monthly payment due. Make these payments each month until the debt is clear. FYI, the more money you can pay above the minimum, the faster you can clear the debt.

Apply the total monthly payment used to pay down the first loan to the following loan, including the current minimum you have already been paying.

What are the advantages of using the avalanche method?  

More Cost Effective

Since you're focusing on paying off high-interest debts first, the avalanche method can save you money on interest charges over the long term. You’re eliminating the bills that costs you the most money.

Manage High-Interest Debt

The avalanche method is effective for high interest accounts like credit cards which can be in the double digits.

Cons of using the Avalanche Method 

The avalanche method is admirable, but it might take a while to see progress as you pay off the more considerable debt. It's also not as motivating as the snowball method because you typically won't have the same small wins.  

Another disadvantage of using the avalanche method is reducing the number of accounts with outstanding balances takes longer. It could take a while to pay off an account in full, which can be discouraging.

Which one of these methods is right for you?

Both methods are very effective and helpful in helping you pay off debts but choosing the right one depends on your finances and personal preference. It also depends on the magnitude of debt you owe and how much interest is attached to them. 

If you want to stay motivated as you pay off your debt, then the snowball method might be what you need. However, the avalanche method may be perfect for you if you want to save money on interest rates as you pay off. So, take your time to consider the pros and cons of both methods and look at your debt situation before you decide which one you want to use. 

 Remember that you're in charge here and should only pick a method that makes you feel comfortable without strain. 

However, don’t start either the avalanche or the snowball method if you are late on payments because it could make matters worse. Instead, after you create a budget to see where your money is going and how much you can pay on each bill, call the lenders and arrange realistic payment plans.

Can't find any “extra” money?

The disadvantage of the Snowball and Avalanche methods is that disposable income is required. Consider debt consolidation first if your budget is so tight that you can't pay above the minimum. This reduces the number of accounts to pay down and often a lower interest rate- both wins when paying down debt.

Getting out of debt can be intimidating, but it is rewarding. We know you can do this, and we'll provide resources to help you get to the other side!