What is the best way to reduce debt? It's a question that everyone with debt asks at some point.
The most-efficient means of debt reduction is probably the snowball method. There are two main variations of the snowball method, but you must consider your personality to determine which of the two is right for you.
The Classic Snowball
The classic snowball debt reduction method works as follows:
- Make a list of all your debts, ordering them from highest interest rate to lowest interest rate.
- Set aside a specific amount of money that will go toward paying these debts each month.
- From the amount you set aside, make the minimum payment on all debts. Whatever money is still left over goes toward the debt with the highest interest rate.
- When you finish paying off the debt with the highest interest, continue the same method. You make the minimum payment on all debts, and all of the extra money goes toward paying down the debt with the now-highest interest. The payments made toward the first debt that was paid off get "snowballed" into the next-highest-interest-rate debt.