Taking on debt is Americans’ big regret of the past decade. The road to debt freedom is often paved with good intentions, but you’ll need to make a plan if you want to efficiently and effectively get rid of it.
Personal finance author and personality Dave Ramsey helped popularize the “snowball” method. Consumers who follow it pay debts starting from the smallest balance to the largest. It’s not the most financially-efficient way to discharge debt if your larger debts have higher interest rates. Interest will compound over time, leading to a larger overall debt bill to pay. But some experts argue it builds motivation and increases the chance you’ll follow through.
“The problem with your money is not your math. It’s the person in the mirror,” Ramsey says on his website.
Another popular option is the “avalanche” method, which prioritizes paying off debts from highest interest rate to the lowest. Consumers can save more money (and pay off debt faster) with this method.
But which method is best? We asked 28 certified financial planners — here’s what they said.
Q: Which debt payoff method is best?
Here’s why some experts think snowball is better
“I like the snowball method because it works well with human psychology. Having successes, especially early on, can help someone see that they are making progress towards the goal, and reinforce their resolve to kill their debt."
— Chris Chen, certified financial planner and wealth strategist at Insight Financial Strategists
“Numbers aside, what’s most important is accomplishing the goal of paying down debt. Although you’ll pay more interest with the snowball method, if seeing debts paid off provides a sense of accomplishment and motivation to continue, then this method may be more appropriate for someone."
— Brian Fischer, certified financial planner at Evensky & Katz.
“From a psychological standpoint the snowball method works better because of the gratification of getting one debt at a time out of the way. It may not be the most monetarily sound but the goal is to get out of debt, and it seems to work."
— Rodney Loesch, certified financial planner at Life Goals Strategies Group.
Here’s why some experts think avalanche is better
"The goal is to pay as little interest as possible with any debt. With the avalanche method, you can focus on the reduction in total debt dollars. Mindset is key when choosing the best strategy.”
— Melissa Ellis, certified financial planner at Sapphire Wealth Planning
“Picking off some low-hanging fruit can help clean up the clutter and aid in focusing, but don’t ignore the reality that larger interest payments are just digging you a deeper hole."
— Laura Barry, certified financial planner and senior vice president at Wealthspire Advisors.
“The idea is to save and build wealth. Paying off the high interest debt first saves the client moolah."
—Bart Brewer, certified financial planner at Global Financial Advisory Services.
Bottom line: The best debt payoff method is the one that works best for you. If you’re ready to get started, we have a list of 50 ways to pay off debt.
Image: Giorgio Trovato