Debt Strategies

⚠️ DISCLAIMER: I am not a financial advisor. This is not financial advice. These are notes on a system. Do your own research.

What Are Debt Payoff Strategies?

Debt payoff strategies are systematic approaches to eliminating multiple debts. The two main methods — Avalanche and Snowball — differ in whether you prioritize math or psychology.

Both work. The best one is the one you’ll actually stick with.

The Two Methods

Avalanche Method (Math-Optimal)

How it works: Pay minimum on all debts, then throw every extra dollar at the highest interest rate debt first.

Why it works: Interest is the enemy. Attacking the highest rate first minimizes total interest paid.

Pros	Cons
Pays least total interest	Slow early wins if high-rate debt is large
Mathematically optimal	Can feel like no progress
Saves the most money	Requires discipline

Snowball Method (Psychology-Optimal)

How it works: Pay minimum on all debts, then throw every extra dollar at the smallest balance debt first.

Why it works: Quick wins build momentum. Eliminating debts entirely feels good and keeps you motivated.

Pros	Cons
Quick early wins	Pays more total interest
Builds psychological momentum	Not mathematically optimal
Easier to stick with	Ignores interest rates

Example: Same Debts, Different Strategies

Starting debts:

Debt	Balance	Interest Rate	Minimum
Credit Card A	$2,000	24%	$50
Credit Card B	$5,000	18%	$100
Car Loan	$8,000	6%	$200
Student Loan	$15,000	5%	$150

Extra payment available: $300/month beyond minimums

Avalanche (by interest rate)

Payment order:

Credit Card A (24%) — paid off in ~6 months
Credit Card B (18%) — paid off in ~14 months
Car Loan (6%) — paid off in ~24 months
Student Loan (5%) — paid off in ~36 months

Total interest paid: ~$4,200 Time to debt-free: ~36 months

Snowball (by balance)

Payment order:

Credit Card A ($2,000) — paid off in ~6 months
Credit Card B ($5,000) — paid off in ~14 months
Car Loan ($8,000) — paid off in ~24 months
Student Loan ($15,000) — paid off in ~36 months

Total interest paid: ~$4,800 Time to debt-free: ~36 months

Note: In this example, the order happens to be similar because the smallest debt also has the highest rate. That’s not always the case.

Which Should You Use?

Use Avalanche If:

You’re motivated by math and optimization
Your highest-rate debt isn’t enormous
You have strong financial discipline
Saving money matters more than quick wins

Use Snowball If:

You need early wins to stay motivated
You’ve failed at debt payoff before
Your smallest debts can be eliminated quickly
The psychological boost is worth the extra cost

Use a Hybrid If:

Your highest-rate debt is also relatively small (lucky you)
You want to clear one quick win, then switch to avalanche
You have a mix of small annoying debts and large serious debts

The Math vs. Psychology Trade-Off

Here’s the uncomfortable truth: the mathematically optimal strategy only works if you follow it.

Studies show people using the Snowball method are more likely to complete their debt payoff journey — even though they pay more interest. The psychological momentum of eliminating debts entirely outweighs the mathematical inefficiency.

The best strategy is the one you’ll finish.

Before You Start: The Starter Emergency Fund

Before aggressively paying debt, build a $1,000 starter emergency fund. Why?

Without it, every emergency becomes new debt. You’re running on a treadmill. The starter fund breaks the cycle.

See Emergency Fund for details.

Common Mistakes

Advanced: Debt Consolidation

What it is: Combining multiple debts into one loan, ideally at a lower interest rate.

When it makes sense:

Your credit is good enough for a lower rate
You won’t rack up new debt on the cleared cards
The math actually saves money (watch for fees)

When it’s a trap:

You consolidate, then spend on the cleared cards
The new loan has hidden fees that erase savings
You’re extending the timeline significantly

Consolidation is a tool, not a solution. The solution is spending less than you earn and directing the difference to debt.

The Debt-Free Milestone

When you pay off your last debt, redirect that payment to:

Full emergency fund — 3-6 months of expenses
Retirement accounts — Max tax-advantaged contributions
Other goals — House down payment, education, investments

See Tax-Advantaged Accounts for the recommended order.

The Bottom Line

Debt strategies are:

Avalanche — Math-optimal, highest rate first, saves the most money
Snowball — Psychology-optimal, smallest balance first, fastest wins
Personal — The best method is the one you’ll actually complete
Not magic — Both require spending less than you earn

Pick one. Start today. The interest clock is running.

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