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Which Debt Reduction Method is the Best?
I've been reading a lot lately about how one method or the other is best for getting out of debt. There are a ton of programs being touted as “the best”, and I do think some probably work better than others. So what do I think is the best?
Here's a quick look at a couple of the good ones I've seen.
The Debt Snowball
The debt snowball method, taught by Dave Ramsey, is one of the more popular debt reduction tactics being used right now. To do the debt snowball, you follow this progression:
- Put all your debts in order from the smallest balance to the largest.
- Pay the minimums on all of your debts.
- Put any extra money towards paying off the smallest debt first.
- Once the smallest debt is paid off you roll that money over towards paying off the next largest debt.
- Wash, rinse, repeat.
The method is touted as being successful because it gives you some “quick wins” and motivates you to keep paying down your debt. To hear why Dave Ramsey thinks the plan is successful, listen to the audio on this post.
This method is criticized because it isn't mathematically the soundest way to pay off debt. You will probably end up paying a bit more using this plan than some others. Proponents counter this by saying that the psychological boost you get from this method easily outweigh the small amount of interest you might save.
The Debt Avalanche
Another popular debt reduction method is the debt avalanche as popularized by Consumerism Commentary. Using the debt avalanche works like this:
- Order your debts in order from the highest interest to the lowest interest.
- Pay the minimums on all the debts.
- Put any extra money towards paying off your highest interest debt.
- Once the highest interest debt is paid off you roll that money over to paying off the next highest interest debt.
- Wash, rinse, repeat.
This method is touted as being the mathematically best way to get out of debt. You'll pay the least amount of interest, and be able to start saving for your future in no time.
This method is criticized because critics believe it doesn't take into account the human element of debt reduction. It requires you to be more disciplined, and be able to follow through with payments even when you don't see immediate results.
So Which Is Best?
So which method do I think is best for getting out of debt? Whichever one you choose to do! I think personal finance is personal so one person might connect more with one plan, and another with the other. More analytical types might work better with the debt avalanche, and more emotional free spirits may connect better with the debt snowball.
I think as long as you're making a plan to get out of debt, you are headed down the right path. As Dave Ramsey says:
You can't go wrong getting out of debt!
You can't go wrong getting out of debt, no matter what plan you choose. The key is to GET OUT OF DEBT!
Other Debt Snowball Opinions From Around The Web
- Dave Ramsey is bad at math @ fivecentnickel.com
- Tweaking the debt snowball to fit your life @ thinkyourwaytowealth.com
- In praise of the debt snowball @ getrichslowly.org
- The emotional snowball @ gatherlittlebylittle.com
- The debt snowball and how I made it work for me @ thesimpledollar.com
- Eliminate debt with the debt snowball @ zenhabits.net
- Debt Snowball Calculator @ whatsthecost.com
- Debt Avalanche. Correct? @ beatingbroke.com
- An illustrated guide to debt reduction @ ncnblog.com
- I like Dave Ramsey, but he's still wrong @ nodebtplan.net
Do you think there is a best way to get out of debt? What method have you used to reduce or get rid of debt?