Everyone talks about the 2 main debt payoff strategies: the avalanche and the snowball. What absolutely no one mentions is that there is actually a third debt payoff strategy and it’s equally effective. In this post I’m going to tell you all about this third debt conquering option, so you can decide if it’s a better choice for you.
A THIRD DEBT PAYOFF STRATEGY THAT NO ONE IS TALKING ABOUT
Update: This was originally posted in August of 2017. That was when my husband and I first thought of this strategy and started using it to pay off our debt. This specific strategy helped us pay off $35,000 worth of debt and eliminate 2 major monthly payments. Since we got married in 2015 we have paid off $90,000 worth of debt! That’s almost hard to believe.
I was recently thinking back at how far we’ve come and I wanted to reshare this post with you. I’m not claiming that I invented this strategy, but I’ve never seen it or heard about it used anywhere else.
Here is the original post:
Debt. Most of us have it. And we all have one thing in common. We’d like it to go away. Preferably, as fast as possible. Bonus points if it doesn’t take too much extra money with it.
Figuring out the best way to deal with our debt can be super confusing, frustrating, and downright hard. It’s easy to want to pull the covers over our heads and pretend that our debt problem just isn’t there. I’ll admit that I actually tried the pretend-it-isn’t-there strategy for a little while right after college, and let me tell you, that is not the way to go.
The best thing you can do is tackle your debt head on. Fight it. Destroy it. And get rid of it for good so that it can’t come back.
Well, you have a few choices. The two main ones are the Debt Avalanche and the Debt Snowball. You’ve probably heard of these. If you’d like to read about them in detail, check out my 2 Ways to Pay Off Debt post here.
Very basically, in the avalanche method you pay off your highest interest debt first. In the snowball, you pay off your smallest debt first (so that you can then roll those payments into your next debt and continue to gain momentum as you go) regardless of interest rate.
Those are the only 2 strategies you ever hear about. At least, those are the only 2 strategies I’ve ever heard about. But as it turns out there is another option. I’m going to tell you about it in a second but I want you to understand this one super important concept first:
SUPER IMPORTANT DEBT CONCEPT
Whichever strategy you choose, there is one thing that all debt payoff strategies have in common. I believe understanding this, and sticking to it, is really the key to getting out of debt. It took me forever to understand this myself, so I want to really spell it out for you.
Focus all of your extra attention, extra money, extra payments on only ONE debt at a time. Obviously, continue paying the minimum payment for all your debts. But choose one, and only one, debt to pay off first. Devote all the extra money you can to pay off that debt.
Spreading a little extra money to all of your debts is like spinning your wheels in the mud. You’re not going to get anywhere that way. It’s probably slightly better than just paying minimum payments, but it’s not get you much closer to paying off your debt.
Got it? Focus your extra payments to ONE debt at a time. That’s the debt that you’ll pay off first.
HOW DO I KNOW WHICH DEBT TO PAY OFF FIRST?
First, decide on a strategy and that will lead you there.
If you’re doing an avalanche, you’ll pay off your highest interest debt first.
If you’re using a snowball, you’ll pay off your smallest debt first. That’s smallest total amount owed.
Now, here’s the 3rd way to do it….
THE THIRD DEBT PAYOFF STRATEGY
Pay off the debt with the highest monthly payment first.
Without considering interest rates or debt totals, find the debt that has the highest monthly payment and focus your debt killing energy there until it’s gone.
So, why would you want to do this?
There are a few reasons.
- By paying off your highest payment debt first, you’ll free up more money monthly that could be devoted to paying off the rest of your debts. Depending on the specifics of your personal debts, this will likely allow you to pay off your debts quicker.
- It’s the best of both worlds. You get the motivation factor of paying off a debt and (again depending on your specific circumstance) it could help you pay off your debt sooner than snowballing would.
- If your financial situation is about to change and you may need more available funds in the future, it might make perfect sense to pay off that highest payment debt while you can.
Let me explain why this was the best choice for my family
We’re having a baby and our lives are changing. I’m leaving my day job and we’re transitioning into being a one-income family. This is amazing, but also super terrifying from a financial standpoint.
When I became pregnant and we started planning for our future, we took a close look at our debt. This is a vital step in figuring out how to pay that evil debt off.
We used a super simple organizer to help us see our whole debt picture. This Destroy your Debt printable is available for FREE in my Freebie Library, along with tons of other great printables.
When we saw the big picture of all our debts, we realized our best option was to pay off the debt with the highest monthly payment.
Then, once that debt is paid off, it will allow us flexibility in the future. If we need that chunk of money to be allocated somewhere else (which, with me not bringing in a paycheck, we very well might). At the same time, if things are steady for us financially, that chunk of money can be devoted to another debt.
More flexibility = Less stress
As I wrote about in my 2 Ways to Pay Off Debt post, my previous debt plan was the avalanche. But as our family situation changed, we knew our debt strategy had to change too. We hadn’t heard of this 3rd debt strategy anywhere, and it turned out it was exactly what we needed.
Our highest debt payment is $500! We’ve been devoted to paying it off for the past year and we’re oh so close to getting rid of it for good. It’ll be paid off by the time Baby gets here. And that will be huge!
Also, my husband’s income fluctuates based on the amount of overtime he works. By paying off this debt, we have some wiggle room in our budget. And less worry about how we would manage things if things get bumpy.
IS THIS THIRD DEBT PAYOFF STRATEGY RIGHT FOR YOU?
Take a look at your finances- with your spouse if you have one- and decide. It might not be the best strategy for you right now. But keep it mind that you do have a third choice in the future if your financial picture changes. Mine did.
Psst… Want some freebies to help you pay off debt? Hop on my email list here. It’s my favorite place to give you money saving tips and insights that I just don’t share anywhere else. Plus you’ll get lots of free financial tools just for signing up.
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Nice article, this is actually the method I have been using for the last 5 month’s. However there is another lesser known method called the Tsunami. Here you pay off the debt that has the most emotional impact or stress. Thanks for sharing.
Latoya | Life and a Budget says
Now that I read this, it really makes total sense! We currently have a car payment that takes about $300 of our income. Besides our mortgage, it’s our second largest monthly expense, but it also has a ridiculously low interest rate of like 2 percent. Ive thought about this constantly. I hate making that $300 car payment, regardless of the fact that the loan is so cheap. I keep thinking about how much more we could be putting on student loans or an HVAC service bill we have if we didn’t have that $300 payment. I’m definitely going to share your article with my readers. It’s not a widely accepted concept, but it may be the very thing that people need to get a leg up on their journey to debt freedom. Thanks so much!
Julie- Logger's Wife says
That’s actually a pretty smart idea. Never thought of that. We do the snowball method but definitely believe what you say about pick a method, stick with it, and then throw all extra money that way.