Say you're up to your eyeballs in consumer debt. You realize this, and head to to your local library to check out the personal finance section, looking for a way out. Upon reaching the personal finance section, you are faced not with a maze of twisty little passages, all alike, but with perhaps a dozen books, mostly all alike, each with a different way to debt freedom.
Bible Money Matters asked: “Which Debt Reduction Method is the Best?”
His conclusion, which I agree with, is that there is no best method. Any one of them is good if it gets you out of debt!
Debt reduction is a process. If the amount of debt is substantial, it will be a long process. Incremental overspending over a period of years usually needs to be repaid by incremental underspending over a period of years.
If there are multiple consumer loans involved, the process can be sped up a little bit if the highest interest rate loan is paid off first. That's the quicker way to pay off all the debt if the person in debt sticks with it. If they stop, it's mostly for naught. A more encouraging, albeit longer, way to pay off the debt is to pay off the smallest loan first, regardless of interest rate. It usually costs more in interest payments to do it this way, but it does have the advantage that it knocks out one of the loans faster.
Ultimately, the monetary difference between the two methods is usually in the noise, and the result is the same if carried through to completion: no debt.
Basically, the particular choice of debt reduction method is not nearly as important as carrying it through. To carry it through, one must know oneself and choose a plan that works.
Good post! I agree, use the method that will work for you. It is like losing weight, we all know that we need to burn more calories than we consume, but the method we use should be the one that we will stick to over a long period of time. The debt snowball has a better chance in my opinion to work over the long haul, because we can see the change by paying off the smallest debt quickly. It's like losing one pound on a diet, we are encouraged and will continue with something that works.
For me, I have three credit cards, two of which are paid off every month. So my debt reduction method is to pay off that one card. The problem is that the one card is $18,000 and seems very daunting. Blame a new house and baby in the last 18 months.
Just like people learn differently they approach their life challenges differently. This translates to paying down debt as well the encouragement and information they need has to be presented to them in a way they'll "GET". You're right that any method is good and finding the one that suits you best is important.
Great post! I'm glad that this topic has been discussed because there are an increasing amount of information out there about how people should be dealing with their debt. Some methods will just not work for some people and those people will give up. Family and finances are very individual, very personal issues and there really is no one-true method for getting your finances straight. The only thing that will work is finding something that makes sense and sticking with it. Nice job!
I agree getting rid of debt is always a good thing, whatever way it is accomplished. But I would still pay down the highest interest rates first. That just makes way more sense to me and it will train you to look at the big picture and get your emotions out of the game.