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How to pay down debt and become debt-free

Published Date
Author Mariah Siddiqui

KEY TAKEAWAYS

✔  Becoming debt-free is possible. A little planning and perseverance can get you on the path to financial stability.  

✔  There are three proven options for paying down debt: snowflake, snowball, and avalanche. Each tackles debt differently, but all focus on making you debt-free in a way that works for you. 

✔  Don’t be afraid to ask lenders for solutions. Whether it’s reducing your interest rate, increasing the payment amount or frequency, it all adds up.

If you’ve managed to get into debt, you can get back out. There are proven ways that can help. With some planning, commitment and determination you can become debt-free. The key to making it happen sooner is increasing the amount or frequency of your payments. 

Here are 3 ways to help pay off your debt:

Option 1: Pay off each debt a bit at a time

Often called the “Snowflake Method”, this involves chipping away at each debt using every dollar available. For each debt, set up automatic payments to make the required payments. In addition, set up payments so that, at any time, you can make a lump-sum payment. Each debt gets the minimum payment required, plus you can make extra payments on your debt. With each extra payment, the snowflakes slowly become a blizzard and the balances on your debts start to decrease.

Option 2: Pay off debt one at a time

Let’s look at Mohammed’s situation. Over the years he’s run up some debt but he’s committed to wiping it out. Here’s what he owes:

In this option, also called the “Snowball Method”, Mohammed lists all his debts from smallest to largest and then makes a plan to pay as much as possible on the smallest debt, while making the minimum payments on the others. Once the smallest debt is paid off, he has more money each month. His power to pay gathers momentum like a snowball rolling down a hill as he continues to increase the amount of each payment towards his smallest debt. In this case, he would start with his credit card, then the car loan and finally his student loan.  

Option 3: Pay the debt with the highest interest rate first

Another way to quickly pay off debt is to tackle the debts in order from the highest to the lowest interest rate, called the “Avalanche Method”. In this case, Mohammed would address each of his debts in the following order:

  1. $5,000 in credit card debt at 19% interest
  2. $15,000 student loans at 5.9% interest
  3. $10,000 car loan at 5.2% interest

This method requires Mohammed to tackle the higher interest rate credit card before the lower interest rate car loan. The key to the avalanche method is that it minimizes the amount of interest you’ll pay over time, and by paying less interest, you can apply those savings to other debts which will help you pay off your debt faster.

Bust Your High Interest Rates
Paying down high-interest debt can often feel like taking two steps forward and one step back. This is because the interest that you are charged is so high that it can add hundreds of dollars per month to your loan balance. A good way to speed up your debt repayment on high-interest debt is to try lowering your interest rate. 

Whichever method you choose, you’ve taken the first step to becoming debt-free.  At easyfinancial, we’re here to help you get on the path to a better tomorrow. Ask us how a debt consolidation loan could also help you plot your course of debt. 
 

Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.