When it comes to paying off debt, to be efficient, you absolutely need a strategy. Paying more than the minimum is certainly a great start, but to pay as little in interest and knock out your debts as quickly as possible, a strategy is needed. Knocking out debt should be a top financial priority, especially if you are paying interest.
We’ve all heard of common strategies like the Snowball method and Debt Stacking, but what about other strategies like “snowflaking” and constant payment? The CGS Team is sharing some great strategies for paying off your debt once and for all. Find the strategy that best fits your situation and get to work. Also, check out the Savvy Saving Woman’s Debt Reduction Kit to help you track your payments and guide you through the debt-repayment process.
Strategy #1: The Snowball Method
The most common debt repayment strategy is the Snowball Method. The Snowball Method requires you to use any extra cash or savings at the end of the month and apply it to one specific debt. That specific debt is chosen by the lowest balance or the highest interest rate. If you need consistent signs of progress, paying off the lowest balance debts is the way to go, since they can be paid off quicker than highest interest rate debt (Debt Stacking Method). You will continue paying minimum payments on any other debts.
Strategy #2: Constant Payment
The Constant Payment Method requires you paying a constant amount, significantly above the minimum payment if possible, on each of your debts each month. The theory behind this is that paying a constant payment amount above the minimum reduces the principal balance, which also reduces the interest rate. If you already have a set amount of money each month reserved for debts and don’t want to remember to pay each month, this could be an effective alternative.
Strategy #3: Debt Stacking
Similar to the Snowball Method, the Debt Stacking Method requires you to use any extra cash or savings at the end of the month and apply it to one specific debt. However, that specific debt is chosen by the highest interest rate. If you want to save the most money in interest in the long run, this is the best method. You will continue paying minimum payments on any other debts.
Strategy #4: Snowflaking
We came across the “Snowflake” Method by The Simple Dollar and loved it! It’s a great way to avoid overthinking your extra debt payment amounts. Snowflaking generally refers to any little action you take that saves you money, then immediately applying that savings to your debt payments. To save time and avoid multiple transfers, keep track of your daily mini-savings then complete a transfer at the end of the day.
Dealing with debt and assessing the best payments to make is a key factor in your financial success. Instead of aimlessly spending money, make sure you are taking the most effective approach when paying down your debts. What method do you use and how well has it worked for you? Leave a comment below to share your debt-repayment experiences!