Many times we do not know how to start paying our debts, but the important thing, as in any aspect of our lives, is to have discipline and organization.
Before explaining the methods that we will propose, we recommend that you make a detailed list of all the debts you have, as well as the interest percentage that each one of them has. Taking into account that you should seek not to borrow more until you manage to stabilize yourself with the ones you have in the present.
- Snowball Method:
This was created by personal finance expert Dave Ramsey, which is based on starting to pay for the smallest debts, that is, from the debt of the smallest amount until paying the largest amount last.
The steps to pay your debts through this method are as follows:
- List your debts (excluding mortgage) from lowest to highest, regardless of interest rate.
- Make the minimum payments on all your debts except the smallest one.
- Pay as much as possible on your smallest debt.
- Pay the smallest debt in full until you move on to the next one (which will be the next one on your list)
- Repeat until you pay each debt in full.
- Avalanche:
This method aims to reduce the interest you pay and eliminate the debts you have.
The steps to pay your debts through this method are as follows:
- List your debts (excluding mortgage) from highest to lowest by interest rate.
- Make the minimum payments on all your debts except the one with the highest interest.
- Pay as much as you can on the debt that charges the most interest.
- Pay the debt with the highest interest rate in full until you move on to the next one (which will be the next one on your list)
- Repeat until you pay each debt in full.
Economists recommend the avalanche method to reduce interest payments (which over time makes the debt more expensive) but the snowball method allows you to obtain more satisfaction on a personal level because the achievement is more tangible and allows for greater motivation, but each person decides which method best suits their needs and personality.
