There are three varieties of strategies for debt reduction: the avalanche method, the snowball method, the blizzard method and MoneyCoach can make these strategies easier for you. The first step is to create accounts with the debts you have and prioritize them by using these three methods. Once you have decided which strategy is best for you and prioritized the debt, you get a hold of your finances and start a journey toward being debt-free.
The avalanche method involves paying off the balances with the highest interest rates first. ( You can do it by creating an expense category: Debt repayment and a subcategory with the name of the person/company you owe money to, selecting the debt account you want and entering the amount of money you have decided to pay off ). The goal is to erase your debt as quickly and efficiently as possible.
Here’s how it works: Make minimum payments on each of your accounts except the one with the highest APR. For the card account with the highest APR, pay the minimum plus any extra you can afford.
Repeat this process every month until that debt has been paid off, then, keep paying the same monthly total, but take every dollar you were using to pay off the highest-interest debt and put that toward paying off the debt account with the second-highest interest rate.
By aggressively paying down your highest interest balances first, you may save hundreds or even thousands on interest charges in the long run. If saving money is your top priority, stick to this strategy until all your credit card debt is gone.
With the snowball method, you pay off the debt account with the smallest balance first and work up from the, as with the avalanche method, you always make the minimum payments on all your accounts, but then you pay with any remaining money, the debt account with the smallest balance.
After the balance on that account is wiped out, put any extra cash toward the remaining debt account that now has the smallest balance. This method can help you build the confidence and positive repayment habits you need to eventually conquer all your debt.
The third strategy is known as the blizzard method. This combines paying off the smallest balance first (snowball) and then paying off the highest-interest balance (avalanche).
The avalanche saves the most money, but some folks prefer a quick win with the snowball method. The blizzard combines both — you get the emotional boost and then you can save money by using the avalanche.
Digging yourself out of credit card debt isn’t easy. To do it successfully, you’ve got to change your financial behavior and prioritize where you spend your money. It may take some time to get used to the changes, but ultimately you gain money management skills that can help you live a financially savvy life for years to come.
We are thinking and prototyping very hard to create a new way you can easily track debts in MoneyCoach and we will share more in the near future, so stay tuned and get excited!