What's the Best Way to Ditch Your Debt for Good?

What's the Best Way to Ditch Your Debt for Good?

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Sick and tired of the debt payment merry-go-round you’ve been on?

Trust me, I’ve been there, and while my husband and I are still in the middle of our debt payoff journey right now, we have learned a ton along the way. Like most couples, when we got married we bought a house, taking on a 30 year mortgage. I also brought my student loans to the table, we took out a vehicle loan for my husband, and racked up a balance on a credit card getting ‘necessities’ for the house like furnishings. Pretty much an average household when it came to debt.

Right around when we got married, I discovered Dave Ramsey’s book Total Money Makeover. I was so fascinated by the stories of couples in that book that paid off ridiculous amounts of debt in a short amount of time, and I was on board.

The funny thing is, debt doesn’t seem like such a big deal until overnight it becomes this mountain in front of you.

So, we hopped on to the Ramsey bandwagon, and got going on his baby steps. I won’t get into detail on them here, a quick Google search will get you all the info you need if interested. But, despite all of the success stories I read about, we tried and failed. And tried and failed. And tried and failed. You get the picture.

Since then, I have learned way more about personal finance and the different options that are out there. I now see that Ramsey’s one size fits all plan does not in fact suit everyone. They call it PERSONAL finance for a reason, and I quickly realized that I would have to figure out what made sense for us.

If you’re hunting for the debt payoff strategy that will work for you, you’re in the right place!

Lets dive in - I’m going to share four different strategies, how they work, and the pros and cons of each one.

Strategy One: Debt Snowball

How it works:

Like a snowball rolling down a hill, picking up mass and speed on it’s way down, this method starts small and finishes big. List all of your debts from smallest balance to largest. You’ll focus on the one with the smallest balance first. Just pay the minimums on all other debts, and focus all of the extra on the small one. Not sure how much extra you can spare for debt? Learn how to Budget the Abundance Financial way and you’ll know! As soon as that one is paid off, you’ll add all the money you were paying to that debt onto the minimum payment for the next smallest debt. Continue until you reach your last debt, by which point you’re applying the total of minimum payments for all of the debt you started with, plus any extra you can spare. Imagine how fast that last debt will get crushed this way.

Pros:

  • Get quick wins right away as you smash through your small balances. Debt payoff can take a long time, so it’s super helpful to have wins to celebrate to keep you going.

  • You’re not spreading yourself thin. Having focus on one debt at a time lets you see your progress very easily

Cons:

  • More interest can accrue during this method than others. If a high balance debt also has high interest, it will keep growing while you’re focused on the smaller debts

Who this strategy is best for:

  • People who like quick wins

  • People who are intimidated by their high-balance debts

  • People who have some extra in their budget at the beginning of their payoff journey

Strategy Two: Debt Avalanche

How it works:

Not to be confused with the Debt Snowball method, the Debt Avalanche uses a very similar approach, but instead of going from smallest balance to biggest, it goes from highest interest rate to smallest. So things like high interest credit cards get tackled first, and things like your low interest mortgage wait until last. You still just pay minimums on all but the one debt you’re focused on, then roll that money into payment on the next debt on the list.

Pros:

  • This method will save you the most possible money by ensuring as little interest as possible accrues while you’re paying off your debts.

Cons:

  • If your highest interest debt is also your highest balance, it can be easy to lose steam before you get it paid off.

Who this strategy is best for:

  • People who can keep motivated over long periods of time

  • People who want to keep every penny they can away from their creditors

  • People who are paying more in interest than they are in principal

Strategy Three: Highest Payment First

How it works:

For this strategy, we’ll be listing your debts based on the minimum monthly payment required each month. You then focus on the highest payment first. Very often, this could be your mortgage payment, so it’s up to you if you want to tackle that first, or leave it off for last. Mortgages can be hefty, and trying to do that first is an easy way to get burnt out. It’s okay to start with the next biggest payment.

Pros:

  • Frees up your cash flow super fast

  • Helps give you peace of mind that you can more easily divert funds to an emergency or short term goal

Cons:

  • Highest payment is often mortgage or other high-balance account

  • Could accrue more interest than other methods

Who this strategy is best for:

  • People who have very little wiggle room and want to create it in their budget quickly

  • People who are motivated by making large payments on their debts

Strategy Four: Ditching Emotional Baggage

How it works:

If you have a debt that brings up bad memories and emotions, and keeps you stuck in a phase of your life, this strategy has you focus on that first. Things like divorces, breakups, or situations that forced you to spend in a way that doesn’t line up with your values can really take a toll on your emotional health. Getting rid of reminders can sometimes be the best thing to help you heal and move on with your financial journey. In this case, if there’s a debt that just makes you feel downright awful, get that sucker out of the way first.

Pros:

  • Helps you let go of bad memories, and get closure

  • Harnesses emotions to achieve results, which can be much more effective than just the numbers

Cons:

  • Could accrue more interest than other methods

  • Doesn’t fit most traditional debt payoff strategies

Who this strategy is best for:

  • People who are being held back by their past due to the weight of debt they’re still carrying

  • People who aren’t just changing their financial situation, but changing their life situation

I hope by now you see there’s no one ‘right’ way to pay off debt, as long as it’s getting paid off!

It’s also possible that you may use a combination of these strategies. Maybe you’ll start paying off the one debt that’s got some emotional baggage for you, and once that’s done, you switch over to one of the other strategies. Or, maybe you think you know which one is best, but once you get started, you keep falling off the bandwagon like we did, so it’s time to switch it up and try something else. Whatever way you slice it, bravo to you for deciding to take this step toward financial independence.

I would love to hear about your debt journey, and which method you think suits you best. Tell me in the comments!

How to Budget the Abundance Financial Way

How to Budget the Abundance Financial Way