Many a YNABer has shown up on our virtual doorstep, motivated by the desire to escape debt. Big debt, little debt, credit card debt, student loan debt, medical debt. All kinds of debt.
And your budget is a critical piece of the picture—strategically giving every dollar a job is the first step towards living within your means and digging yourself out of the hole. If you’ve ever attended YNAB’s classes, Aggressive Debt Pay Down or Master Credit Cards with your Budget, then you know that there’s no trick to debt repayment, it’s all about priorities. And, apparently, snow …
Snowball vs. Avalanche
There are two common strategies for erasing debt, and there’s much debate about which is better:
- The Snowball Method: With the snowball approach, you pay off your debts in order of size (starting with the smallest). Pay the monthly minimum for each loan, putting any extra dollars in your budget towards the smallest loan. Continue this process until all loans are paid.
- The Avalanche Method: To create an avalanche, once again, you pay the minimum for each loan. The difference is, you allocate your extra dollars towards the loan with the highest interest rate.
Some people, notably Dave Ramsey, suggest that the snowball approach will motivate you to keep going with early “wins” as you pay off your smaller debts. Others argue that the avalanche approach saves you money in the long run because you’ll pay less interest.
So which way is better? As with most things, the answer is, it depends.
Debt Snowball Calculator
To help you choose the right method, Rob Berger, founder of The Dough Roller, created this simple, online debt repayment calculator:
You can try it out, free, without giving up your name, email, or any other sensitive information. After you input your debt balances, interest rates and minimum payments—voila!—the calculator tells you which repayment method is, from a numbers perspective, best for you.
If you’d like to revisit the calculator each month to update your new, lower(!) balances, and check progress, set up a free account on The Dough Roller to store your data. You can set up your account by clicking the green “Register” button on the top-right corner of their site.
A Word on Inspiration
With YNAB and an icey-cold cure for your credit—the snowball/avalanche—you have everything you need to be debt-free. Now, it’s up to you to keep the momentum going! When you find yourself feeling a little overwhelmed by your big money goals, remember this: every extra dollar you pay off today, is an extra dollar you free up for yourself tomorrow. You deserve a future that is free from the stress of debt—and a future where every single cent of your paycheck belongs to you!
Let us know what you think of the calculator. Email [email protected]