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What's the best way to pay off your debt?

Financial experts tend to migrate into two camps when it comes to the topic of paying off debt. In general, they either advocate the snowball or avalanche approach, though obviously other unique approaches are possible. Whether you should snowball or avalanche when paying off debt depends on both your situation and your temperament.

The debt avalanche involves ranking your debt in order of interest rate from highest to lowest. You then pay off debt that is the highest interest rate first because that means you pay less on your debt in total once it's all paid off. As you move through your debt, paying off each account in order, you end up paying more and more toward principle, thus paying each account off faster.

The debt snowball involves ranking your debt in order of balance from lowest to highest. You then pay off debt that is smaller first because you get a "fast win" that is good for morale. It also lets you increase how much you pay on each subsequent debt faster.

The avalanche is mathematically the cheaper way to pay down debt. The snowball is the method that nets you faster gratification, which can be important to some individuals. Understanding how you are personally motivated helps you decide which method to choose, although with each method, you have to employ will power and ensure you are making at least your monthly minimum payments on all accounts to keep from getting further behind.

In some cases, neither the avalanche or the snowball is workable. You might not have enough income to go around, or your debt might have ballooned well out of control already. Consider speaking with a lawyer about other options, such as bankruptcy, to help you with such issues.

Source: Forbes, "Debt Snowball Or Debt Avalanche: How To Eliminate Credit Card Debt," Nick Clements, June 15, 2016

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Joshua Z. Goldblum, Attorney at Law
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