- I finished graduate school with a student loan debt of $ 50,000 and did not know how to pay it back.
- Then I learned about the debt snowball method and it made sense for my personality type.
- Using this approach, I repaid $ 16,000 in loans and will be debt free in two years.
- Read more stories from Personal Finance Insider.
In the world of personal finance, there has been a longstanding debate about which debt elimination strategy works best. debt snowball or debt avalanche…
The main difference between the two is this: With an avalanche of debt, you first pay off your debt at the highest interest rate, and then work your way down by paying as much of that top debt as possible, while making the minimum payment on everything else you owe. With a snowball of debt, you attack the smallest balance first, paying off debts one by one, until you put all your spare money into your biggest (and last) debt. By using the avalanche method, you reduce the amount of interest you pay over time. With a snowball of debt, you can feel more motivated by destroying individual balances.
The snowball worked for me
The Debt Avalanche Method would have saved me a little money, but knowing my personality, I would not be successful with it and would probably pay more overall. I am more motivated when I see the tangible consequences of my choices, which made me feel successful as I knocked out smaller loans one by one. (As with any personal finance decision, the most sensible decision for you will depend on your personality and financial situation.)
When I got my master’s degree, with a teaching qualification in one hand and my $ 52,000 student debt secondly, I had to make many decisions: firstly, whether I Government Service Loan Forgiveness? In the end, I decided not to do this for various reasons. One of the reasons was that the convoluted system still has incredibly low success rate and I wasn’t sure if I could figure it out.
Another reason was that I knew I wanted to work abroad – which I had been doing for three years that made my PSLF payments invalid during that time. (Beyond that, however, I have one $ 6,000 Perkins loan that is forgiven through the teacher loan forgiveness program.)
The next question is: how will I pay off these loans? Looking at my debt – six loans ranging from $ 1,300 to $ 15,000 with interest rates ranging from 3% to 5% – I did my research and eventually decided that the debt snowball method was an easy choice for me. My largest loans had the highest interest rates, but the difference was minimal enough to be fine with me. Contrast that with my personality and it became clear that overall I would do better with the debt snowball approach.
How I applied the debt snowball method to knock out my loans
While living abroad, I earned an average of about € 1,000 (about $ 1,187) per month and paid very little on my loans. After I returned to the US at the end of 2019, I started paying more consistently. I would pay about $ 1,000 a month, with most of it going to the minimum amounts for each loan, and all the extras to the minimum current balance. Using this strategy, I have successfully repaid one of the smaller loans every few months, while continuing to make some progress on the larger ones. To date, I have paid off five loans ranging from $ 1,300 to $ 5,000 in addition to the regular monthly payments on the larger loans.
Over time, I paid out about $ 16,000 using this method – until February 2021, when I decided to use suspension of federal credit to start building up wealth. I grew up in a foster home and did not have the wealth of generations, which led to a slower process of accumulating wealth. Even though I wanted to pay off my loans as quickly as possible, I knew that I would have no other such investment opportunity, which allowed me to change my focus until at least September when the loan payments would resume.
Different strategies work for different people, but I’m proud of the progress I’ve made with the debt snowball method, and – if all goes well – I’ll be debt free in two years.