Debt is a noose, tightening around your neck and threatening to suffocate you. Some people are able to release the tension somewhat before falling right back into it again. Break the cycle once-and-for-all. The freedom of a life without debt looming over you cannot be overstated.
The first step is to create a budget, live within your means, shred the credit cards, and choose a debt reduction method.
Remember: always make the minimum payment on every loan regardless of how you reduce debt.
Debt Reduction Methods
When it comes to paying off debt, there are two main schools of thought. Which you choose to follow will depend on preference.
- Debt Snowball
- Prioritize the loan with the lowest balance, regardless of interest rate. Once paid off, repeat. With this method you see results faster as loans become paid off. This makes it very motivating, but you may end up paying more while the higher balance loans grow from interest.
- Debt Avalanche (Stacking)
- Prioritize the loan with the highest interest rate, regardless of balance. Once paid off, repeat. It may not feel as motivating as the snowball method since it means potentially leaving lower balances alone while paying off higher ones, but it saves money since you tackle the highest interest rate loans first.