When people receive extra funds like a bonus, pay raise, or tax refund, they’ll most likely want to pay off their debts as quickly as possible. But which debts should get targeted first? With the use of a loan payment calculator and the right repayment method, the decision is simple.
There are two popular methods for debt repayment: the snowball method and the avalanche method. This article will compare pros and cons of each of these two methods to help borrowers make an informed financial decision.
Once people determine how much extra money they have, they need to decide which debts to pay off.
Here are a few factors to help make that decision:
Once someone decides which debts to target, they need to devise a solid plan to pay them off. They may want to consider either the debt snowball or the debt avalanche method.
The snowball method involves a person repaying their debts from the smallest to the most significant, regardless of the interest rate. The logic behind this method is that it will give them a quick win and much-needed motivation to keep going. With each debt they pay off, they’ll have one less bill to worry about and more money to put towards their remaining debts.
On the other hand, the avalanche method involves repaying debts from largest to smallest, regardless of balance. The logic behind this method is that people will save more money in interest over time by targeting their high-interest debt first. With each debt that’s paid off, there’s less interest accruing and more money available to put towards remaining debts.
So, which is better? The answer really depends on a person’s individual circumstances.
The snowball method may be the way to go if they need a quick win to keep them motivated. However, if they’re looking to save money on interest, the avalanche method may be a better choice in the long run.
Of course, there is no one-size-fits-all answer regarding debt repayment. The best method may depend on the borrower’s unique financial situation. If they’re unsure which method to use, it’s recommended to talk to a financial advisor who can help.
No matter which method is chosen, the important thing is to get started. The sooner a person starts repaying their debt, the sooner they’ll be free from its burden.
OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.