The Debt Snowball isn’t the only method for reducing your debt. In this video I will discuss two alternatives: The Highest Interest Rate Method and the Proportional Method.
The Highest Interest Rate Method of Debt Reduction involves paying the minimum due on all of your bills, and then paying as much as possible on the one with the highest interest rate. PRO: Save money in interest payments. CON: It may take a good long while to pay the highest interest rate bill off, which may be demoralizing.
The Proportional Method involves taking the extra amount you have for debt reduction and applying it proportionally to each debt. PRO: You are paying extra each month on EVERY bill instead of just one. CON: This method involves more math to figure out.
The Debt Snowball method pays the minimum due on all debts, except the littlest one. You attack that one with a vengeance until it’s paid off. This is my preferred method because it give you a quick victory and you can check something off your list quickly. PRO: Recognizes that money is emotional and harnesses that. People are more likely to stick with the plan. CON: You pay slightly more in interest than the Highest Interest Rate method.
Which method is right for you? The one that appeals to you most is the one you’ll likely stick with and see to the end!