How to pay off your debts quickly
When you are working towards having better financial health, the first thing you need to take care of is paying off your debts. You have probably heard that there are bad debts, like credit cards, and good debts, such as having a mortgage or student loans (you are working on yourself, and they usually have low-interest rates). Nevertheless, you should always work towards being debt-free so you can invest in your future.
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Before tackling the good debts, you should pay off any other debts, like personal loans, credit cards, or lines of credit. Experts will suggest many ways of paying them off, but I will share with you the technique I am currently working on to pay off all of my bad debts. It’s called the avalanche technique.
What is the avalanche technique?
Basically, you start with the smaller debt amount and you work towards the largest one, regardless of their interest rates.
How do you do that?
To give you an easy example, let’s go with these 4 debts (fictional numbers):
- Debt #1: A personal loan for appliances of $2,500, with 0% interest
- Debt #2: A line of credit of $7,000 with 10% interest
- Debt #3: A car loan of $10,000 with 5% interest
- Debt #4: A credit card of $20,000 with 20% interest
Minimum payment amounts
Before we get started, let’s add some fictional minimum payment amounts (again, this is an example, I have no idea how minimum payments are calculated):
- Debt #1: $50
- Debt #2: $200
- Debt #3: $300
- Debt #4: $400
In your budget (you have one, right?), make sure you allow money for these minimum payments, on a monthly basis. If you miss a minimum payment, this will negatively affect your credit score (I will get to this in another blog post; stay tuned!).
Now, try the avalanche technique to pay off your debts
Now, to tackle your debt with the avalanche technique, start focusing on debt #1. You have a minimum payment amount of $50. Try to make it $100. Your monthly payment will look like this:
- Debt #1: $100 (instead of $50)
- Debt #2: $200
- Debt #3: $300
- Debt #4: $400
Once you paid off debt #1, tackle debt #2, while keeping on making your monthly minimum payments. Since you had already budgeted the $100/mth to debt #1, put this amount towards debt #2.
| Debt #2 |
| Add the $100 from debt #1 to your payment of debt #2, plus the minimum of $200 |
| Monthly payment: $200 + $100 = $300 Or Debt #2 + Debt #1 |
Once debt #2 is paid off, do the same for debt #3, then debt #4
| Debt #3 |
| Add the $100 from debt #1 and the $200 from debt #2, plus the minimum of $300 |
| Monthly payment: $300 + $100 + $200 = $600 Or Debt #3 + Debt #1 + Debt #2 |
| Debt #4 |
| Add the $100 from debt #1, the $200 from debt #2, and the $300 from debt #3, plus the minimum of $400 |
| Monthly payment: $400 + $100 + $200 + $300 = $1,000 Or Debt #4 + Debt #1 + Debt #2 + Debt #3 |
I hope you see the progression there. The reason why I prefer this technique is that I feel like I’m actually making progress, instead of never seeing the end of it. I love checklists and just checking off debts as I pay them off!
Alternative: the high interest approach
As I said, there are different approaches to paying off debts. Many people will tell you to get rid of the debt with the highest interest rate first, then work towards the smallest one. In this case, you should pay off your debts in the following order: #4, #2, #3, and #1.
I tried this technique but it’s not for me
I’ve been trying to clear off my credit card for years. This approach doesn’t work for me as I don’t feel I’m making any progress at all, then I get online for some therapeutic shopping, which makes me use my credit card even more.
Take care of your financial health
Financial wellness is so important, as it impacts our stress level. I know it feels like an impossible mountain you’re trying to climb, but just think about how proud of yourself you will be when you have conquered your debts!
I’m in the same boat
And by the way, I am not just telling you this to show you how great I am. Noooope. I’m managing my finances for the first time in over 12 years (my ex-husband was in charge of the finances), and I am struggling with debt too! I did a lot of research to find the best way to get out of debt and start saving to buy a house with my boyfriend and go on vacation (once that is a thing again). So, if you need someone to talk to, feel free to reach out to me! Please note that I am not a finance professional; I’m just a mom trying to get her s**t together!
13 Comments
Leslie
I’ve been following a similar process. I love how you broke it down and shared your experiences. Thanks for being transparent💗
Valerie
Thank you for your kind words <3
Megan
Having college debt is something I’ve struggled with for so long. Thanks for creating this article and adding in your tips and ideas. This is so helpful!
designersophiac
thanks for these tips, fiscal health is very important!
Rebecca @ Boss Single Mama
Having tried the debt snowball and the debt avalanche, I know that the avalanche method really is the best way to get out of debt fast. The more you can throw at your debt, the better.
Valerie
I agree! Of course, it’s different for everyone, but any other technique discouraged me!
Barshan Turno
Needful content. Keep creating content like this! Tons of love for you
Alyssa
Excellent financial tips! Thank your for sharing!
Joe
Great tips! Interest sure has a nasty way of making someone feel like they’re taking 1 step forward and 2 steps backward.
Keena
I’ve heard of this method for some time now. Now I will use it to tackle some small debt. Thank you for the information.
Valerie
I hope it’ll work for you as it works for me! You got this 💪
Lina williams
You’ve done a great job explaining this technique. We used this to pay off our debt as well.
Valerie
Thank you! I like this technique because I feel like I’m actually progressing 🙂