What Debt Elimination Strategy Works Best For Student Loans?



Edwin Tan / iStock.com

There’s been a lot of talk in Washington lately about canceling student loans, and it’s true that some have been forgiven. But for millions of other student loan borrowers, canceling may not be an option. This is especially true if you have private student loans, rather than government loans. If you are looking for the best way to settle your student loan debt, there are two main options: the snowball and the debt avalanche. Here’s an overview of how these two debt elimination strategies work to help you decide which one is best for you.

Checking the facts: Will a fourth stimulation check take place?
Stimulation update: States are giving out thousands of bonus $ 1,000 checks – will you get one?

Debt snowball

Rather, the debt snowball method is a psychological attack on your debt. The process begins by first putting as much money as possible on your smallest debt, while making the minimum payments on all of your other debts. This way your smaller debt will be paid off quickly which can give you a huge psychological boost. From there, you tackle your next smallest debt, slowly moving up the ranks until you’ve paid off all of your debts.

Who is it best for

For some people, the idea of ​​tackling debt can be overwhelming, even inaction. This can be especially true if you have multiple debts, as your large number of debts can make you feel like you will never be able to pay them all off. The debt snowball is a great way to start making progress. Once you’ve paid off your smallest debt, you’ll have a sense of accomplishment, and suddenly your next smallest debt won’t seem like such a big hurdle. With the debt snowball method, you can consistently score small wins, and that’s often enough to keep people on track for long-term success.

To find: 16 key signs you’ll still be in debt

Who might not be suitable

If you are mathematically oriented, or if you are led to pay off your debt in the most financially efficient way possible, the debt snowball method might not work for you. Since you will be paying off your debts in terms of size rather than in terms of the interest you pay on each debt, you will likely end up paying more if you choose the snowball method.

Debt avalanche

The Debt Avalanche approach targets your best credit cards first, with only minimum payments made on your other debt. The concept behind the Debt Avalanche Method is that by paying off your high interest debt first, you will ultimately pay the smallest amount of interest as you pay off your debt.

To learn: How much debt Americans have at each age

Who is it best for

The Debt Avalanche Method works best for those looking to get out of debt at the lowest possible cost. By putting as much money as possible on your most expensive debt, you’ll end up getting out of debt by paying the smallest amount of interest mathematically possible. For those who are trying to get out of debt as quickly as possible, the debt avalanche method is the most effective.

Who might not be suitable

With the debt avalanche method, the small wins associated with the debt snowball method do not provide any psychological boost. If your highest interest rate debt is also the highest, you might feel like you will never pay it off because you are spending money on that debt month after month and all of your remaining debts. persist – and grow larger.

To start: Make a debt-free future your reality

The bottom line

The most important thing to remember when paying off debt is that creating and sticking to a strategy is more important than which method you choose. While the debt avalanche may make more mathematical sense, if you are not able to stick to it, then the debt snowball method might be the best choice for you.

More from GOBankingTaux

Last updated: September 17, 2021

This article originally appeared on GOBankingRates.com: What Debt Elimination Strategy Works Best For Student Loans?



About Author

Leave A Reply