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Attacking credit card debt: debt snowball or debt avalanche?

As many residents of Tennessee can attest, credit card debt can be absolutely crushing. According to one source, the average U.S. household has over $15,762 in credit card debt. Deciding how to tackle such debt can be difficult, and an individual may not know where to start, especially if they have several credit cards, all with varying balances and interest rates.

Two popular ways to attack credit card debt include a "debt snowball" or a "debt avalanche." First, let's look at the debt snowball method. In this method, the debtor takes the credit card with the smallest balance and puts all of his or her extra money towards that card until there is a zero balance. In the meantime, the debtor will only make the minimum payments on the rest of his or her credit cards. Then this cycle is repeated until all the debtor's credit card debt is eliminated. This method offers some good psychological benefits. There are quick successes, which allows the debtor to build momentum to become debt-free. It also gives the debtor a clear plan, so the debtor can stay focused.

Now, let's look at the debt avalanche method. In this method, the debtor takes the credit card with the highest interest rate and puts all of his or her extra money towards that card until there is a zero balance. In the meantime, the debtor will only make the minimum payments on the rest of his or her credit cards. Like the debt snowball method, this cycle is repeated until all the debtor's credit card debt is eliminated. This method makes sense mathematically, as if the plan is followed, the debtor will eliminate debt faster and pay less interest.

In the end, the debtor needs to choose the method that they will best be able to stick to in the long-run. Some debtors need the psychological boost the debt snowball method provides in order to see the process through from beginning to end, while others are incentivized by the debt avalanche method that allows them to pay off their debt quicker while saving money. Either way, those overwhelmed with credit card debt should not despair. If either of these methods does not work, filing for bankruptcy may be the another option to consider.

Source: Forbes, "Debt Snowball Or Debt Avalanche: How To Eliminate Credit Card Debt," Nick Clements, June 15, 2016

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