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Best Way to Pay Off Your Debts


As summer turns to fall, many Floridians are assessing their financial situation. Having splurged on a summer vacation with the kids, you might be shocked when your credit card bill arrives in the next few months. Fortunately, many Americans pull themselves out of debt each year without the help of a debt management firm or even a credit counselor. Read on for more information about tried and true methods of whittling down your debts.

Debt Snowball or Debt Avalanche? 

Two popular methods for debt reduction are the debt snowball and the debt avalanche. Both approaches require that you list all of your debts, along with the current balance, minimum monthly payment, and interest rate. Then you need to free up some money in your budget so that you can make more than the minimum payments on at least one debt.

Under the debt avalanche strategy, you pay the minimum monthly on all of your debts except for the one with the highest interest rate. You then throw all extra money to that debt until you pay it off.  Next, you contribute extra money to the debt with the next highest interest rate. Rinse and repeat until you have paid off your last debt.

With the debt snowball strategy, you contribute all extra income to the smallest debt, regardless of the interest rate. Once you pay that debt off, you contribute all extra income to the next largest debt until you have paid off your largest (and final) debt.

There are advantages to both. For example:

  • You’ll pay less money overall with the debt avalanche strategy because you knock out the highest-interest loans first.
  • However, some consumers need to feel that they are gaining momentum. With the debt snowball strategy, you gain a psychological boost when you see your first small debt paid off, which can give you an added incentive to keep going.

No one approach is better than the other. Instead, you might start off with the debt avalanche and then switch to the snowball approach if you find that your commitment to debt repayment is waning.

A Third Approach: The Debt Snowflake Method 

Debt experts have offered a third approach to debt repayment which is attractive for those who are struggling to free up extra money each month. They have called it the debt snowflake method, and it goes like this:

Each day you try to save some money. Maybe you decide to skip buying a coffee at a coffee house and instead brew a cup at home. Or maybe you cancel your gym membership and exercise on the beach every money. Whenever you free up some money—no matter how small—you count that as a “win.”

At the end of the month, you can add up all the extra money you have saved up in wins and contribute that extra money to one of your debts. If you want, you can even try to make an extra payment every month (so long as your creditor will let you).

One advantage of the debt snowflake method is that it allows you to whittle away at the debt even if your income is not steady. For example, you might get a surprise inheritance or a tax refund. You can then use these one-time boosts to pay off extra debt.

Overwhelmed with Bills? We Can Help? 

If no debt repayment method works, it might be time to tackle your debts through a consumer bankruptcy. At Nowack & Olson, we have helped thousands of Floridians turn a new leaf by wiping out unsecured debts in a Chapter 7 or Chapter 13 bankruptcy. For more information, please contact one of our Plantation bankruptcy attorneys at 866-907-2970.



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