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August 2, 2021
Between entertaining clients, managing staff, seeking funding and placating impatient creditors, running a startup is a series of challenges. But it’s even tougher when you have to keep up with increasing bills every month as your business grows.
The question is, how will you tackle your business’ debt? Two of the most popular debt-reduction strategies are called the debt avalanche and the debt snowball, both of which work well, but which one to choose depends on your particular circumstances.
In a nutshell, if you’re a frugal entrepreneur and believe in saving as much money as possible down to the last penny, the debt avalanche method will likely work best for you.
But if you tend to be motivated by a quick win or a feeling of accomplishment, the debt snowball method is likely a better fit.
To help you further home in on which method is right for your business, we’ve culled the primary features of each one.
Also known as debt stacking, this method aims to minimize the total interest costs you pay. With the debt avalanche, business debts are paid off in order from the highest interest rate to the lowest, regardless of balance.
To apply the debt avalanche method
The debt snowball repayment strategy works like a snowball rolling down a hill of snow. It starts out small but gets bigger and bigger as it picks up momentum.
Debt snowball pays off business debts in ascending order of size. You first tackle the smallest balance and build momentum toward the larger balances, regardless of interest rate.
To apply the debt snowball method
While both are effective strategies to pay off your debt, you might find one easier to stick with and make a bigger impact on your business finances. However, before you make your decision, make sure to figure out how much interest you’d be liable to pay under each method and how long each approach will take to clear off your debts.
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