A mountain of debt.

If that describes your situation, this article is for you. I describe three ways to pay off debt faster without needing a raise at work or having a garage sale.

It is frustrating and frightening to look up from the base of a mountain and imagine reaching the top. The best experts will tell you not to do that. Instead, look closer and see the different levels and stages that make up the climb.

Marathon runners don’t often focus on the finish line. They focus on the next corner, the next hill, or the next street light. They focus on something that is within their view and gets them closer to their goal.

Here are three ways to break your debt into stages and shift your focus from the end to what’s directly in front of you.

The Basic Idea

It is a joy to pay off debt. Credit cards, car loans, or student loans. The weight lifts and the chains are cut. However, those of us that don’t have a specific plan to get out of debt often use that freedom to buy more stuff. For example, let’s say we pay off a credit card that has a minimum monthly payment of $50. That means we would have an extra $50 each month to do as we please.

I beg you to never to do that. A better choice would be to take that extra $50 each month and pay off the next debt even faster. Let’s say our next credit card had a $100 minimum payment. We could pay $150 each month until the second card is gone and use that money to pay off our car loan faster. And on and on.

It is wonderful to have that brief moment of joy, but we’ve only made it to the next street light. We still have miles to go.

How to Get Started

If you are interested in this idea, you might be wondering which debt to start with first. This is where the debate begins.

We could start with the debt that has the lowest balance (Debt Snowball), the debt that has the lowest interest rate (Debt Avalanche), or the debt that would get paid off first (Insert Fancy Marketing Term Here).

The rest of this article will help you choose.

Shouldn’t I Get a Raise or Have a Garage Sale First?

I know there is a lot of advice out there to find extra money and pay off the first debt as fast as possible. I agree with that advice and suggest you take it. However, if you don’t list your debts in the order in which you’ll pay off first, that extra money will only help you once.

Comparing the three methods below is assuming that you only pay the minimum and then rollover the payments to the next loan. Will having a garage sale or getting a raise help? Absolutely! It will make things go much faster. However, this article is meant to help choose which method is best for you.

If you would like to see how these three methods compare when paying an extra amount up front or paying extra each month (e.g., you get rid of cable and have some extra money each month), that’s at the very end.

The Setup

To be objective in comparing these three methods, I created a very simple debt situation that would put each of the three methods to the test. This situation helps us find the pros and cons of each method. I understand this isn’t a rigorous test, but you’ve got better things to do than read a research paper.

1. The Debt Snowball

It’s foolish to assume that we need to be robots when dealing with our money. We’re humans. We have emotions, and trying to take the psychology and emotion out of our goals and habits is a grave mistake.

I start with the Debt Snowball because it is my favorite, and there is academic research to back up this claim (“Winning the Battle But Losing the War: The Psychology of Debt Management”).

Most of us need small wins to keep us motivated. If you start exercising and lose a pound each week for 20 weeks, you will lose 20 pounds. Instead, if you exercise for 10 weeks without losing any weight and then lose 3 pounds each of the remaining 10 weeks, you will lose 30 pounds. But will you stick with something that produces no results for ten weeks? Me neither.

For the Debt Snowball, here’s the order of our debts:

  1. Car Loan
  2. Credit Card
  3. Student Loan

Here are the results:

If we don’t use any of these methods, it would take over 6 years to pay off the three loans (75 months). By using the Debt Snowball method, we would be done nearly two years (23 months) sooner!

But wait…it gets better.

2. The Debt Avalanche

“The Debt Snowball is not the fastest method! Nerds unite to prove me wrong!”

Put down your Valyrian steel swords and lightsabers. I agree with you.

The Debt Avalanche orders your debts by highest interest rate first, and this is always the fastest and saves you the most money. (Well, I haven’t tested to see if it’s always the fastest, but it will win or tie nearly every time.)

The trouble with this situation is that the highest interest rate is the credit card, and there’s $10,000 that we need to pay off. Here is the Debt Avalanche order of debts:

  1. Credit Card
  2. Student Loan
  3. Car Loan

Here are the results:

As far as time is concerned, the first two methods are a tie. What you don’t see is that we will save more money with the Debt Avalanche method.

If saving more money and being the most efficient is enough to motivate you, the Debt Avalanche is the best.

3. Fastest Debt First

If you were to dig deeper into the situation I have developed, you’ll find that the debt that actually gets paid off first—in every situation—is the student loan. The final way that we can order our debts is by which get paid off the fastest:

  1. Student Loan
  2. Credit Card
  3. Car Loan

And here are the results:

And we have a three-way tie! The Fastest Debt First method takes the same amount of time and saves as much money as the Debt Avalanche.

Which Is Best For Me?

If you would like to test out all three methods for yourself, here is the free and easy calculator I used: http://www.calcxml.com/calculators/restructuring-debt

In this article, all three methods paid off the debts in the same amount of time and we would be done nearly two years sooner.

No raise at work. No garage sales. Although you should do both.

It boils down to your unique situation and how you handle money. Go to the calculator mentioned above and try all three methods for yourself. I suggest the Debt Snowball because of its focus on small, quick wins, but you’re an adult. Do what feels best for you.

Extra Stuff

As mentioned earlier, here are the results of the three methods when using an extra payment in the beginning or paying extra each month. I didn’t compare the three methods when paying extra at the beginning and each month because it’s only going to help you, and that’s a no-brainer.

As you can see below, the situation gets better the more money you use to pay off debt. But in each situation, the three methods are a virtual tie. Even though the Debt Avalanche method squeaks by with a win each time.

This virtual tie may or may not happen in your situation, so please play around and see what works best for you.

If you don’t want to go through all that work, just stick with the Debt Snowball method.

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