There’s no “one best way” to pay off debt. In fact, there are 5 methods to pick from depending on what’s most emotionally motivating for YOU.
But before we talk about these debt-busting methods, there's something I need to say first.
You must commit to not going further into debt!
You can’t get out of a hole while digging out the bottom. Will you cut up or freeze your credit cards for now? If you do use them, will you pay your charges in full monthly? How much extra, over and above the monthly payment, will you commit towards debt payment?
Once you make the commitment to pay off your unsecured debt and decide how much you're dedicating per month, then you can pick your method.
5 Ways to Pay Off Debt
1. The Avalanche Method
List your debts according to interest rate, from highest to lowest. Pay the minimum on all debts except for the first one on your list. Put all focus and extra dollars on knocking out the one with the highest interest rate.
Best for: People who are motivated by saving money on interest.
2. The Snowball Method
List all your debts from smallest to largest. Attack the little ones first! You might be able to knock several off your list in the first few months.
Best for: People who are motivated by quick victories and crossing things off their list.
3. The Volcano Method
I used this method when I attacked my debt in my 20s. This is about destroying the debts you hate the most! It might be a debt from a previous relationship, or from a purchase you really regret.
Best for: People who have one or more debts with emotional baggage.
4. The Cash Flow Method
Focus on paying off the debt with the highest monthly payment. If cash flow is tight, this can offer immediate relief to decrease the amount going out for debt payments.
Best for: People with variable income or tight cash flow.
5. The Fair Share Method
This one is different from the others because you’re paying something extra on ALL your debts. If your Visa is 30% of your total debt, you’re going to take the extra money you have and put 30% of it towards the visa. This one requires more math than the other methods.
Best for: People who have a strong sense of fairness and want to pay extra on all of their debts vs. focusing on one.
Here's the bottom line: Pick the debt reduction method that appeals to YOU the most, because you're more likely to stick with it!
Related: How To Stop Spending Emotionally