Glossary of Debt Strategies
1. Avalanche Method
The avalanche method focuses on paying off debts with the highest interest rates first while making minimum payments on all other debts.
How It Works:
- List your debts from highest to lowest interest rate.
- Pay as much as possible toward the debt with the highest interest.
- Once that debt is cleared, move to the next highest interest rate.
- Repeat until all debts are paid off.
Benefits:
✅ Saves the most money on interest over time.
✅ Pays off debt faster compared to other methods (if followed consistently).
✅ Best for those who want to minimize total debt costs.2. Snowball Method
The snowball method focuses on paying off the smallest debts first to build momentum while making minimum payments on larger debts.
How It Works:
- List your debts from smallest to largest balance.
- Pay as much as possible toward the smallest debt while keeping up with minimum payments on others.
- Once the smallest debt is cleared, move to the next smallest.
- Continue until all debts are eliminated.
Benefits:
✅ Builds motivation and confidence by achieving quick wins.
✅ Helps create a sense of progress and control over debt.
✅ Best for those who need a psychological boost to stay committed.3. Highest Monthly Payment First Method
This strategy focuses on clearing debts that have the highest monthly payments first, reducing your financial burden as quickly as possible.
How It Works:
- List debts in order of highest to lowest monthly payment.
- Pay off the debt with the largest monthly payment while making minimum payments on the rest.
- Once the highest monthly payment debt is gone, move to the next highest.
- Continue until all debts are cleared.
Benefits:
✅ Frees up the most cash flow early, making monthly budgeting easier.
✅ Reduces financial stress by lowering overall monthly obligations faster.
✅ Best for those struggling with high monthly expenses and needing immediate relief.