The first thing any financial advisor or guru will tell you to do is to get out of debt. It may seem like common sense. So is not going into debt in the first place. Alas, life happens. Credit cards get swiped. Suddenly, you feel like you’re drowning!

Debt is a four letter word in our household and avoided at all costs with two exceptions. We do have a mortgage and we do use credit cards for some temporary debt. Mortgages are tough to avoid and the debate about credit card usage and paying it off every month will rage on forever. It has been said that if there ever is a nuclear apocalypse, the surviving cockroaches and Twinkies will argue about this topic.

If you are in debt, there are two common approaches to getting out of it. One is called the Debt Snowball. The other is the Debt Avalanche. Both approaches have the same goal. Which is better?

Why the Debt Snowball approach works

The Debt Snowball is more of a psychological approach toward paying off debt. You don’t have to worry about interest rates. You simply rank your debt from smallest to largest based on the total amount owed.

While paying minimums on everything, any extra cash you have will go toward the smallest debt until it is paid off. From there, you move on to the next smallest.

People who preach the Debt Snowball say that if you are able to get rid of debts entirely, it helps motivate you to go after the next one. It’s a nice way to maybe get started. However, the Debt Avalanche is better when looking at numbers.

Why the Debt Avalanche approach works

The Debt Avalanche is the complete opposite. You order your debts by interest rate instead from the highest to the lowest. The same strategy then applies. All debts are paid at a minimum with extra cash going toward the debt with the highest interest rate.

The Debt Avalanche approach might not have a quicker pay off in terms of progress because your highest interest rate could also be one of your bigger debts. However, if getting out of debt is your goal, you’ll benefit far greater with this one.

Interest rates are what keep people in debt for a long time. Getting rid of as much interest as possible will save more money in the future. You just have to stick with it.

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The book that convinced us to start investing and being more proactive with our money and lives: The Only Investment Guide You’ll Ever Need by Andrew Tobias

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