Many people have at least some form of debt. As allied health professionals, our primary debt tends to be our student loan debt. But we have other forms of debt as well – car loans, credit card debt, mortgages, maybe even a personal loan. Debt is debt, no matter what. But there are some strategies to paying off your debt.
Before you read on, I would encourage you to list out all of your debt – what type of debt, your balance, the APR, and the minimum monthly payment. Use this data to compare it to these debt payoff tactics and see what works best for you.
When you see all your debt laid out in one place, it can be overwhelming to figure out how to pay it all off. Here are 3 strategies to outlined by ChooseFI in their Debt 101 blog post:
1. Debt Avalanche
The Avalanche method has you pay off your debts starting from the one with the highest interest rate, to the lowest interest rate. This strategy seems to be the most effective one mathematically speaking, as it eliminates your heaviest interest debt first. Most often, credit card debt will have the highest interest.
So you put all your extra money into this highest interest debt, while you pay the minimum balance on your other debt. Then once you’ve paid off that highest interest debt – and you’ll be surprised at how fast you’ll pay that off – you continue on to the next highest, and continue until it’s all paid off.
This will be challenging at the forefront, especially when you’re hustling to get the first debt paid off. But remember that you are working towards the goal of financial independence, and how paying off debt can help you achieve whatever goals you may have once you’re financially independent.
2. Debt Snowball
The Snowball method has you pay off your debts starting from the one with the lowest balance, to the highest balance. This strategy seems to be best psychologically speaking, as you’ll be paying off debts faster at the beginning, which may help you stay on track to the finish line.
So you put all your extra money into the lowest balance, while you pay the minimum balance on your other debt. Then once you’ve paid off that lowest balance debt – which will be insanely fast – you continue on to the next lowest, and continue until it’s all paid off.
This strategy is great to help you mentally speaking – you’ll be so proud of yourself for paying off these debts quick at the start, and I hope this would help you continue to keep up with this momentum.
3. Debt Hybrid
As expected, this method combines the two methods. You start off using the Snowball method by paying your lowest balance debts first, then taking the rest of your debts and organizing it so you start paying off the highest interest rate debts next. This gives you the best of both worlds – that sense of accomplishment that you’re paying off debt, followed by the best way to pay off debt based on the math.
If all of this sounds confusing or overwhelming, this is where I’d love you to help you. Click here to schedule your FREE 20 minute consult with me, where we can figure out together a plan to help you pay off your debt, change your relationship with money, and help you reach your financial goals!
To read ChooseFI’s Debt 101 article, click here.
Note: I am not a certified financial advisor/planner or a certified financial analyst or a CPA or an accountant or a lawyer. Remember, I am an allied health professional, just like you! I am a fan of personal finance. I am not affiliated with ChooseFI, and I am not being reimbursed by ChooseFI to promote their website. I am merely a fan of their work, and I want to share it with you all in hopes to help you reach your financial goals.
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