Ice Ice Baby : What Debt Do You Pay Off First?

Paolo Cogliati | Published June 22, 2020 | Updated July 7, 2020 | 4 min read


You’ve got debt, and you’ve taken the few steps required to get started on your road to freedom. Now let’s pick a strategy before you turn on Auto-Pay.

Before we start :

  • You listed your loans on a spreadsheet (15 min estimate)
  • Arranged them in order from the highest interest to the lowest interest (5 min estimate)
  • Have a general understanding of your monthly living costs. (30+ min estimate)
  • Know a comfortable - or slightly aggressive - dollar amount you can afford to pay back your debt monthly

Welcome to freedom mountain

There are generally two ideal strategies for debt repayment. Your goal is to pick one of them: The Snowball Method or The Avalanche Method.  

Both sound cold but picture a beautiful resort on a mountain. Because you’re on your way to it as these loans get taken care of. 

The Snowball Method 

The debt snowball method is all about momentum. This is an excellent strategy if you're feeling extra overwhelmed and need to see some change! 

The general theory is to start seeing small wins instantly and build momentum over time. Using this method, we pay off the loan with the lowest balance while paying the minimum on your other loans. When that loan is paid off, we work on the next loan with the lowest remaining balance.

Example: You have three loans with balances of $18,000, $4,000, and $1,200. 

  • You focus most of your money on the $1,200 loan to completely get rid of it first.
  • You pay the monthly minimum on your $18,000 and $4,000 loan.
  • Once your $1,200 loan is gone, we focus on the $4,000 loan next and eventually work our way up to the 18k. 

The great thing about this method is that we can see and feel the results right away. We are also able to concentrate more money on the most significant loans once we've taken care of the smaller ones. 

The not-so-great thing about this method is that you might be paying more interest over time. But things will feel more comfortable to manage. 

The Avalanche Method

The Avalanche method, as the name suggests, is a little more aggressive of the two ways. The goal is to be fast and powerful, saving you as much money as possible.

The Avalanche method, as the name suggests, is a little more aggressive of the two ways. The goal is to be fast and powerful, saving you as much money as possible.

With this method, we first pay down the loan with the highest interest rate while paying the monthly minimum on the rest of our loans. When that loan is paid off, we go to the next loan with the highest interest rate.

Example: You have three loans, with interest rates of 3.0%, 7.0%, and 5.5%

  • Focus your money on the 7.0%, regardless of its balance 
  • Pay the monthly minimum on 3.0% and 5.5%
  • Once the 7.0% loan is paid off, you move on to the 5.5%.

This is an ideal method because it's as fast as an avalanche! Typically, when using this approach, you finish paying your loan back much quicker, while also spending a lot less interest over time. 

The only negative side to this method is that you might not see wins as quickly as you would with the Snowball method, potentially hurting your motivation. But that's nothing a little bit of mental preparation can't fix. 

There is no wrong choice unless you choose to do nothing 

Both methods will get you to your debt-free mountain resort, sipping a Prosecco in a hot tub. It's just a matter of choosing what works best for you.

  • Easily de-motivated? Choose the Snowball method.
  • Looking to pay less and be done quicker - even it feels slower? Choose Avalanche.

It's a good idea to take a minute to use an Avalanche vs. Snowball debt calculator to see how much money and time you could be saving in the long run. This could severely impact your choice. 

Remember, you don't necessarily need to stick to one. Sometimes a combination of the two works even better depending on your situation - or you might discover you prefer one over the other and decide to switch strategy. 

Whatever you do, keep going! 

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