Three Popular Methods to Pay Down Debt

January 31, 2022

Hands in bright red gloves gather snow into a snowball on a white snowy background

Credit: Kiryl Lis -

Eliminating debt has become a trend over recent years for many prioritizing financial wellness. Whether you are paying off a car loan, mortgage, college loan or credit card bill, below are some techniques and tips that could help you pay down your debt faster. Three popular methods of paying off debt are known as debt snowballs, debt avalanches, and debt management plans.

Paying Off Debt with the Debt Snowball Method

With the Debt Snowball method, the focus is on paying off your smallest balance first. After creating a budget for yourself, paying essential bills, and making minimum payments on all outstanding debt, you must determine how much extra money you can put towards your smallest balance- no matter how little. You’ll likely be surprised how quickly you can pay off the balance using this strategy.

Once the smallest balance is paid off completely, utilize that momentum by putting the total payment you made toward your first smallest balance towards your next smallest bill (in addition to the monthly minimum payment).

To clarify, consider this example. Let’s imagine each bill has a minimum payment of $15 and you have $35 in extra money to apply towards paying down debt. You would then be paying $50 each month towards your smallest balance. Now, once that bill is completely paid off you would put that $50 toward your next smallest bill, in addition to the second bill’s minimum payment of $15. In this scenario, you’ll end up paying $65 each month towards this second bill. All while continuing to pay minimum payments on all other bills.

Once the second bill is paid off in full, the total amount, now $65, will then be added toward your next smallest bill, plus that minimum payment. Below is an illustrated example.

Bill 1 (Smallest Balance) $15 (minimum payment) + $35 (extra funds) = $50 (payment per month)
Bill 2 (Next Smallest Balance) $15 (minimum payment) + $50 (previously allocated to Bill 1, once Bill 1 is paid off) = $65 (payment per month)
Bill 3 (Third Smallest Balance) $15 (minimum payment) = $65 (previously allocated to Bill 2, once Bill 2 is paid off) = $80 (payment per month)
For illustration purposes only

Continue doing this each month, and with each subsequent bill, until all your debt is completely paid off. With this method, you’ll be able to pay off debt faster with the same amount of money you started with in the beginning. This is what creates the snowball effect. Watch your debt tumble away in no time!

Using the Debt Avalanche Method

Debt Avalanches are similar to Debt Snowballs, but instead, they work from a different angle. Instead of prioritizing from smallest bill to highest, begin by paying off the debt that has the highest interest rate. Again, first make sure all minimum payments on all bills are covered. Then, look at your total budget and dedicate any extra funds possible towards paying the balance on the credit card or loan with the highest interest rate.

Once the first bill is paid off, you will work on paying off the balance with the next highest interest rate. The Debt Avalanche method suggests adding all previous allocations of funds towards the next goal.

For example, if the minimum monthly payment for your bill with the highest interest rate is $25 and you want to pay an additional $25 in extra funds per month towards this bill, your payment would be $50 each month until that bill is paid off. Once the 1st bill is paid in full, you would continue by adding the $50 previously allocated monthly for that bill to the minimum monthly payment of the bill with the next highest interest rate, until that bill is paid off as well. For the 3rd bill, you’d add the total paid monthly from the prior bills to the 3rd bill’s minimum monthly payment.

Bill 1 (Highest interest rate) $25 (minimum payment) + $25 (extra funds) = $50 payment per month
Bill 2 (Second highest interest rate) $25 (minimum payment) + $50 (previously allocated to Bill 1, once Bill 1 is paid off) = $75 payment per month
Bill 3 (Third highest interest rate) $25 (minimum payment) + $75 (previously allocated to Bill 2, once Bill 2 is paid off) = $100 payment per month
For illustration purposes only

This allows for stability within your budget, while also paying off debt faster than you typically might when making only the minimum payments. In effect, you are avalanching your funds to pay off debt more quickly and avoiding interest!

Forbes Advisor offers a useful calculator that can help you compute debt payoff using each method.

Debt Management Plans

Debt Management Plans are typically provided by non-profit organizations that have a particular focus on helping you consolidate your debt and pay it off faster. These firms will review your income, expenses, and debts, and work together with you to create a plan to address your specific needs and goals.

Debt management organizations frequently offer loan consolidation, in which the organization purchases a consumer’s debt and becomes the sole agency the consumer works with to pay off the consolidated loans. There are pros and cons to this option, where lower interest rates may be provided yet points may be deducted from your credit score. Ask your debt management provider about how a debt management program may impact your credit score prior to entering into any agreements.
Note: The information provided in this article is meant for educational purposes only and is not advice. Please consult your financial advisor for guidance on your particular situation.