Step 8 - Strategizing your Debt War

If you've been following the 'debt-steps' since Step 1, my hope is that you've already crafted a budget and have a method of tracking your expenses.  In addition, you should have a very detailed list of the debts you have including the amount owed, the interest payable and the date it's paid each month.

Now, it's time to strategize your repayment strategy.  This can be a bit different for everyone. 

When drafting your budget, you should've decided a monthly minimum to throw at your debt.  Again, this amount should be the minimum amount, as any extra money you receive should be sent towards your debt as well.

The decision you need to make now is which debt to pay first.

There are a few different approaches you can consider.  The importance is that whichever method you choose, it keeps you motivated to keep going.  

1.  The Snowball Method

This strategy includes listing your debts from smallest to largest and paying them off in this order.  The thought is that the more rapid payment of smaller debts can increase your motivation to repay larger debts - increasing your momentum, just like building a snowball.  Below are steps for applying a Snowball Debt Repayment Strategy:

     A.  List debts from small to large.

     B.  Make minimum payments on all your debts except the smallest.

     C.  Pay as much as possible on your smallest debt.

     D.  Repeat until each debt is paid. 

2.  The Debt Avalanche AKA Highest Interest Method

This is slightly obvious in its name but includes paying off the debt with highest interest rate first.  When breaking down the numbers for what your debt is costing you, this strategy can make good sense.  Paying down the highest interest debts can free up more money for the other debts the fastest.  The trouble is that logic and motivation don't always work well together.

You need to do an internal audit and decide where you're likely to be most motivated.  Many people find success with the snowball method as they get the 'reward' of checking something off their list FAST, and this keeps them motivated to tackle the next debt.  However, if you work better with logic (and less with emotion), you might be more suited to the Highest Interest Method.

3.  Guilt Method

If you owe money to someone personally, share a credit card, or have a co-signor on something you owe money on, it may be your primary focus to rid yourself of this debt (financially and personally).  It might be best to pay debt you feel most guilty about, and then utilize either the Debt Snowball or Debt Avalanche strategies moving forward.

The objective is to find a strategy that works for YOU and will motivate you to keep going.  You may choose to reward yourself in some way each time you pay something off.  Maybe a new piece of clothing, or a meal out - only within the parameters of your budget, of course!!

After reading the three strategies above, which one resonates with you best?