If you’re working to pay down debt, you’re already taking an empowering step toward financial freedom. But if you have multiple balances across different areas, such as credit cards, medical bills, retail cards, or more, it can feel overwhelming to know exactly where to start.
Two popular payoff methods are debt snowball and debt avalanche. While each strategy can help you reach your goal of paying down debt, they both work differently and the best strategy for you will depend on your overall financial goals.
The debt snowball focuses on momentum. When starting this method, you will list all your current debts from the smallest to the largest and continue to make the minimum payments on every debt—except the smallest. For the smallest debt, you will pay the minimum, plus any extra funds you have, until it is paid off. Once the smallest is completed, you will continue to pick off each debt from the smallest to the largest until you have paid off everything—like a snowball, growing as you roll it across the yard.
This strategy is for you if you are someone who likes to see visible progress that boosts your motivation. You get quick wins each time you pay off one of your debts which can feel rewarding.
The debt avalanche focuses on saving the most money overall. Instead of listing all your debts from smallest to largest, you list them by the highest interest rate to the lowest. Each month, you continue to make the minimum payments on all debts, besides the highest-interest—where you will pay the minimum plus any extra funds you have that month. Once you pay off the highest-interest debt, you go on to the next and so on.
With this strategy, you may not have quick wins, but you will pay less interest over time and may get out of debt faster.
Saving money + faster payoffs
Both methods work, therefore the best one for you is the one you will have a better chance of sticking with. Here is a simple way to decide:
You can also start with one method and then switch to another. For some people, looking at their debt can be very overwhelming, so they will start with the snowball method to get some quick wins and the switch to the avalanche once they’ve built up confidence to close out the remainder of their debts.
If your debts have high interest rates, especially credit cards, a personal loan may help you. With a personal loan, you can combine multiple debts into one monthly payment1 to better organize your debts in one place with a single due date. Depending on where you secure your personal loan, you could secure a lower, fixed rate which can help you save on your overall interest.
Alliant’s personal loans can be a great asset to help you reach your debt reduction goals. You can easily match your term to your financial goal, whether it is a large debt or small, and choose from terms such as a one-year, two-year, four-year or five-year. Further, you won’t be penalized if you pay off your loan early.56
1. Debt consolidation combines multiple debts into a new loan with a single monthly payment. However, it may not reduce your payment or allow you to pay your debt off sooner. Reductions in your monthly payment could come from a lower interest rate, a longer repayment period or a combination of both. By opting to repay the debt over a longer period, you may pay more in interest over time. Prior to applying, we recommend you review your existing debt and this offer to determine the best borrowing options for you.
56. APR=Annual Percentage Rate. APR is 0.4% higher without automatic payment option. Loan approval and APR based on factors such as payment method, creditworthiness and ability to repay. Rates, terms and conditions are subject to change. A loan with a rate of 8.74% APR with a term of 12 months would result in monthly payments of $87.33 per $1,000 borrowed. Payment example is an estimate. Your actual payment may differ based on your special qualifying rate and loan terms. Rates are 1% higher when refinancing an existing Alliant loan.
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