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What’s the Best Debt Repayment Strategy?

Credit card debt can be a sneaky beast. It shouldn’t be a lifelong battle though, by implementing a debt repayment strategy, you can be essentially debt free in no time. The key is organization and perseverance.

In our best mindset, we know that living by the rule of not spending what we don’t have is ideal. However, periods of unemployment, holiday spending, and even rewards chasing can quickly add up over multiple cards. Untethered credit card spending, even on small purchases, can get us in a deep hole in a matter of months.

After that, simply making the minimum payments can mean that we’re spending more money on interest than we did on the initial spending sprees! If you want to tackle your credit spending quickly and easily, try adopting a debt repayment strategy.

Financial “guru” Dave Ramsey advocates for the “snowball method,” in which your strategy will be to pay off the account with the lowest balance first. If you have three credit cards, one with a balance of $2500, one with a balance of $700, and one with a balance of $5,000, Ramsey says that you should tackle the small one first, while continuing to make minimum payments on the other two. After the small one is zeroed out, continue making the same amount of total payments, but then focus on the card with a balance of $2500. When the second one is knocked out, focus all efforts on the $5,000 balance.

The snowball method is one of Dave Ramsey’s “7 Baby Steps” to financial freedom, and has undergone some controversy based on one obvious flaw; it could cost you more money overall. When looking at solely the account balances when deciding which card to payoff first, you ignore the interest rate. If the first two cards you tackle have a lower rate than the biggest beast, then you’ll end up paying more in interest over time.

Another strategy, known as the “debt avalanche,” is comparable to the snowball strategy in that you’ll tackle one account at a time while paying the minimum on the others. Where it differs is that, in the avalanche strategy, you’ll take the interest rates into account and pay off the account with the highest interest rate first.

Critics of Dave Ramsey’s Debt Snowball strategy commonly cite that it could cost you a lot more money over time. However, it has some proven benefits in that it provides gratification at a quicker rate.

“…If you begin with the biggest one, you might think you’re not making fast enough progress, lose steam, and quit before you even get close to finishing,” reads Ramsey’s website. “It’s important to pay your debts in a way that keeps you motivated until you’ve wiped them all out. Those quick wins will pump you up!”

In personal finance, motivation and perseverance outweighs most other variables. There are a number of other strategies, and some are tailored specifically towards certain types of debt and debt size. What’s the best debt repayment strategy for you? It’s the one that you start and stick with over time.