Fewer than one quarter of Americans live debt-free and in 2021, Experian conducted a review and found that the average American had $5,221 in credit card debt, nearly $21,000 in auto loans, and just over $17,000 in personal loans.
While some debt can be good, too much debt can hinder your ability to build wealth.
There are two popular methods for paying off debt. One is the debt snowball method and the other is the debt avalanche method.
The debt snowball method says you pay the minimum payments on each of your debts and then take any leftover money you have at the end of the month and apply it to the debt with the lowest balance. Once that debt is paid off, you move to your next debt that now has the lowest balance and you create a snowball effect as you have more and more money freed up to apply to your next debt.
The debt avalanche method says you pay the minimum payments on each of your debts and then take any leftover money you have at the end of the month and apply it to the debt with the highest interest rate. While this method may not free up money faster, you’ll save more money this way as you’re tackling high interest debt first.
Neither method is right nor wrong. This choice is a personal choice for you as you may want to save the most amount of money or you may want to free up money sooner.
At Clean Cut Finance, you can find many guides on managing debt. Here are a list of popular articles:
- How to Raise Your Credit Score by 200 Points
- How to Pay Off Credit Card Debt When You Have No Money
- How Much Debt Is Too Much?
Articles about Loans:
- How Do Loans Work?
- How to Get a Loan Without a Job?
- What are the Benefits of Obtaining a Personal Loan?
- How to Get a Personal Loan With No Credit History?
- What is a Secured Loan?
- What is an Unsecured Loan?
- What are the Consequences of Defaulting on a Loan?