Debt Snowball VS Debt Avalanche

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Facing debt is something that no one wants to do, even if you are already an adult. However, it is already a normal fact of life that you would need to get that loan more than once. It is great to cover for emergencies, or you just need extra support in the meantime.

On the other hand, owning a business also means that you would have already incurred some debt. Even if you have already paid some of it, others can remain depending on how you run it. You will need to pay them on time unless you want to face insolvency or, even worse, bankruptcy. 

There are two ways that you can tackle debt: through snowball or avalanche. Don’t let the winter imagery dull you, as there is a reason why they are named that way. These two are strategies on how you can pay what you owe efficiently, depending on the situation. You would need to pay in increments, aside from a single one. Each of them has advantages in certain situations, while they might not also work in others.

Two ways you can tackle Debt.

You can read here about how to tackle the debt in your business.

Understanding Debt Avalanche

The avalanche method is just like what it is named after. First, you need to differentiate the one account with the highest interest rate. After which, you would pay off the smaller accounts first and then pay the rest to the one with the higher interest rate. This way, you would need to face a lot of the interest rates since you would be paying in increments. 

This way, you are facing all of your outstanding balances all at once, working towards each other on a step-by-step basis. The avalanche method is great for those who do not want to face a high interest by the end of the paying cycles. In this way, you would also feel that your progress is more because you are tackling everything at once. At this rate, you might end up paying everything at the same time.

How About Debt Snowball?

On the other hand, the snowball is comparatively slower, but this depends on your perspective. In this strategy, you would be paying each debt depending on when it was incurred. This means dates are far more important than the interest rate as with the previous option. It tackles everything one at a time, therefore letting you focus on one before another.

One of the best things about this strategy is it feels more rewarding. Since you can only face one debt at a time, each one is much easier to see. Also, it is great for those who do not might be overwhelmed with the number of their dues. This way, you would not need to worry about the future as you are focusing on the now.

Picking A Side

This will all depend on your preference as a person. If you like seeing progress on everything that you owe, then the debt avalanche method is your choice. However, the debt snowball method is great for those who just want to follow the first-in, first-out philosophy. 

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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