Debt avalanche versus debt snowball: Which method for paying off debt is best for your business?

Debt avalanche method

1. Make an inventory: List business debts by interest rate for every loan and credit card. Start with the highest rate and work your way down the line to the lowest.
2. Pay the minimums: Make the minimum payment for all the debts you’ve listed. Although the focus is to pay off one balance at a time, it’s important to keep up on your other bills to avoid penalties or a ding to your credit score.
3. Pay extra on the debt with the highest interest rate: If you have additional money available each month, use it to pay extra on the loan with the highest interest rate. 
4. Build momentum: After paying off one loan, cross it off the list. Start using the money you were paying on that loan to the debt with the next-highest interest rate.

Debt snowball method

1. Get organized: List debts in order from the smallest balance to the largest. Ignore interest rate and balance.
2. Pay the minimums: Make the minimum payments for all the debts you’ve listed except the smallest. This protects you from being assessed penalties and protects your credit score.
3. Pay extra on your smallest balance: Every month, pay any extra money available toward the smallest balance at the top of your list.
4. Build on your success: After closing out the smallest balance, cross it off the list and move on to the next-smallest debt. Use everything you were paying toward the smallest loan to pay off the next one. 

Takeaway:

Authors

Kanika Sinha

Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.