Ignite FB Tracking PixelHow to Pay Off Debt - Avalanche, Snowball, or Snowflake? - Rachel Tavarez Realtor
How to Pay Off Debt - Avalanche, Snowball, or Snowflake?

by Rachel Tavarez Realtor 03/31/2019

Like most Americans, you probably carry some debt. Reaching your dreams such as saving for a down payment or registering for a class takes longer when you're also paying on money you owe. Paying it off might seem daunting when the only way you know is to either make more money or reduce expenses. There are other ways, though, to tackle debt. Here are three.

The avalanche

When using the avalanche method to pay off debt, organize debt by the highest interest rate to the lowest. Any extra funds you can come up with go toward the debt with the highest interest rate until it is paid off. Then, move to the debt with the next highest interest rate. Take the whole payment amount of the first debt and add it to the payment of the second highest debt, paying it much more quickly. As each debt is paid, move to the next highest interest rate until all debt is paid. Proponents of this method believe your debt is paid off faster with the least amount of interest paid.

The Snowball

This popular method to pay off debt focuses on paying off the smallest debts first, then taking that payment and adding it to the payment for the next lowest debt. As you pay each debt, add that payment amount to the next smallest debt's payment. Each time you pay off one debt, the amount you can throw at the subsequent debt increases in the same way a snowball rolling down a hill gets bigger and bigger. Eventually, you can apply the final amount to your last debt and pay it off more quickly. Champions of this method believe paying off smaller debts first provides a psychological boost, encouraging you to stay on track. 

The snowflake

Both the avalanche method and the snowball method rely on your coming up with some extra cash in your monthly budget to throw at the first debt. But what if your budget is so tight that you can't add a regular amount to your monthly outgo? The snowflake method is different. Always pay minimums on all your debts, but whenever you have random cash, apply the extra to the smallest bill. So, if you sell something online or if a friend pays you back for dinner from a month ago, apply that extra to your smallest debt. Use birthday money, the five dollars you found in a coat pocket, or your tax refund to pay toward debt. Even though you’re not adding a regular amount to your debt payment, you can still reduce the balance and pay off your debt more quickly than by just making payments.

Reach your dreams

Once you’ve paid off your debt, continue to pay the final payment amount into a savings account toward a down payment or some other goal.

About the Author

Author
Rachel Tavarez Realtor
I have had the pleasure of working with Sellers, Buyers and Investors since 2002. The rules of real estate are always changing. Whether you are Selling, Buying, Investing or behind in your mortgage payments, I would be glad to explain the new rules. As a Realtor, my responsibility is to provide information regarding market trends, inventory, financing and negotiate for my clients. I follow the market closely and am ready to inform my clients with up-to-the-minute information. My main objective is to be professional, courteous and have a smooth transaction by working closely with my clients while on "their" real estate journey. Referrals are always a sign of success. I believe referrals have to be earned -- that is my ultimate goal. Prior to becoming a Realtor, I was a Vice Present and Compliance Officer at a Los Angeles based private investment management company representing high net-worth individuals. I also believe that helping others in need is very important. I am a volunteer for the Shelter's Right Hand, which serves as a non-profit auxiliary of the Women's and Children's Crisis Shelter, Inc. which provides emergency and support services to Victims of Domestic Violence and their children. Visit their website, sheltersrighthand.org for more information. Please contact me by phone, e-mail or text to discuss YOUR real estate solutions. I look forward to meeting you. Have a pleasant day.