Hello PF! Today I'll be going over avalanche versus snowball debt payoff plans, and I believe each plan is an equally valid method, in it's own way.
Avalanche method is the one most proposed on this sub, paying down debt in order of highest interest rate. Assuming the person sticks to it, this saves the most money in the long run and is the objectively prudent choice. I recommend avalanche method to users that are confident that they will stick to the plan and won't be discouraged by seemingly "slower" progress.
The other, equally valid method is snowball. A philosophy of Dave Ramsey, the idea is to pay down debt in order of smallest balance to give you nice psychological wins along the way. In addition, and this part is critical to its success, you must apply the minimum payment of each debt you eliminate towards the next debt (thus the symbolic "snowball"). A huge benefit of the snowball method that many people don't consider is that it more quickly frees up minimum payments, providing an "out" for someone that's struggling with cash-flow problems. Even if they can only payoff some of the debt, at least they'll have less minimum monthly payments to worry about. However! One must consider that you'll likely lose more money to interest. Even if there's only a small percentage difference, avalanche method is always the mathematically smarter choice.
Hopefully this clears up some of the confusion about definitions and the benefits versus costs of each method. Have a good day everyone :)
Submitted May 16, 2018 at 09:50AM by thatonecoolkid99 https://ift.tt/2rNXLUn
