Why I chose “the debt avalanche” to pay off $ 81,000 in student loans
- Between my undergraduate and masters, I borrowed $ 81,000 in student loans.
- When I got serious about paying my student loan debt after graduation I considered two popular repayment strategies: the debt snowball and the debt avalanche.
- The snowball, which prioritizes your smallest debts first, is seen as motivating. Avalanche, which prioritizes debt with the highest interest rates first, is seen as more effective – it should save you more money over the life of your loan.
- I chose the avalanche because my debt was accumulating $ 11 in interest per day and I was furious. I wanted to pay off my loans as quickly as possible and for as little money as possible.
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Interest on my student loans cumulative daily, and when I calculated the interest, it was $ 11 per day. Basically I was turning on $ 11 a day just to maintain my loans. When I thought about all the things I could buy with that money, I started to get angry.
This could pay for a return flight from New York to Los Angeles. It could be several very enjoyable meals. It could be a few gigs. At the time, going out was not an option because I paid off my debts. Travel was also suspended. Much of my life was put on hold as I paid off my debt, and thinking about all the things that money could buy drove me crazy.
But I didn’t let anger simmer, I let him motivate me to pay my debt. I have considered two different repayment strategies – the Debt snowball and debt avalanche – and I chose the avalanche method to start aggressively repaying my Grad PLUS loans (interest rate of 7.9%). Slowly over time I saw that more and more of my payment was going to the principal and not just feeding the beast of interest.
Here’s why I chose the Avalanche, and why it worked for me.
Debt snowball is motivating, but debt avalanche is effective
The debt snowball is all about attacking the smallest loan first, while still making minimum payments on the rest of your loans. You pay off the smallest loan, then move on to the next smallest loan, etc. until all your debts are paid off. This method was popularized by debt guru Dave Ramsey.
By using this strategy, you start to see wins faster, which can provide you with a boost of motivation. While going this route can be motivating when you start paying off every small loan, it could cost you more in interest in the long run.
The avalanche of debts The method focuses on high interest debts first, while continuing to make minimum payments on the rest of your loans. So if you have various types of debt, your highest interest rate debt may come from credit cards. In this case, you would put in as much money as possible to pay this off first. Once this is paid off, you move on to the next interest rate debt and so on.
Because it focuses on the highest interest rate (which determines the cost of your debt), the avalanche of debt should save you more money on interest, and therefore save you money over the life of your loans.
Avalanche might be good for me, but snowball might be good for you
While a lot of people promote the debt snowball method as being more motivating than the avalanche, that was not the case for me. I wanted something that made mathematical sense and that would save me money in the long run. Seeing how much interest was accumulating each day was exactly what I needed to get started with the debt avalanche method and pay off the debt.
However, I also know some people who swear by the debt snowball method. There’s a lot of talk about which is the “best”, but the reality is that the best debt repayment strategy is one that you can commit to.
Consistency is the key to paying off debt, so choose a strategy that motivates you and that you can stick to. Whether it’s focusing on the smallest balance with the debt snowball or the highest interest rate debt with the debt avalanche, choose the option that’s best for you. your needs.