Debt Payoff Plan

Debt Payoff Plan

Most Americans live with growth-crushing credit card debt and it makes me sick. Unfortunately, only a solid debt payoff plan is going to efficiently get you to your goal of debt-free living!

Reasons Americans are getting into credit card trouble are endless, but some include:

  • Our youth is financially uneducated and not prepared for real-world math a.k.a personal finance!
  • The cost of living is rapidly increasing as wage growth crawls forward.
  • Unexpected hurdles in life leave some with credit cards as their only lifeline; job loss, health issues

The list could go on forever.

Average Credit Card Debt

The average American has about $6,000 of credit card debt! I am talking about high-interest, growth-stopping, deeper-in-the-hole type debt!

Interest rates with averages clocking in around 18% and reaching highs into the 24-30% range. For those that make up the statistic, the hole seems bottomless. For those teetering on the edge, all it takes is one unexpected event and you become part of it.

If it seems scary, it should! If it seems unfair, it is! If you think there’s no way out, you’re wrong!

You can dig out of debt and this article is here to show you the best options!

Two Schools of Thought

In order for your debt payoff plan to be effective, you need a strategy.

“What is the best way to pay off debt?” The answer, “Well it depends.”

There’s a good debate between the Debt Avalanche vs. the Debt Snowball Method. Here are the pros and cons of each.

Debt Avalanche Method

How It Works

Debt Avalanche Method:

  1. Pay the minimum payments on all debts for maintaining your credit score.
  2. Direct all available funds toward the loan with the highest interest rate no matter what the balance is.
  3. Focus your payment on that loan until it is completely paid off.
  4. Next, direct all available funds toward the loan with the next highest interest rate.
  5. Continue down the line of debts until all are paid off in sequential order of highest interest rate first while completely ignoring the balance sizes.

Why it works

Paying loans in order of the highest interest first will save you the most amount of money. There’s math to back that up! Knocking out higher-interest loans first, even if they are smaller, will save you more money in the long-term.

Saving money with this strategy only leads to you becoming debt-free at a faster rate which is our goal right? Get out of debt fast!

Why it might not work

Human nature makes us act and react to situations in irrational ways. Although the debt avalanche method makes the most mathematical sense, it may end up being your debt-free downfall.

Why? Paying the highest interest loans back first totally ignores the balance amounts of each debt.

If your first debt to tackle is a Visa card payment of $10,500 at 22% interest, the length of time it takes to repay could be years before it can be completely crossed-off your debt list!

This may be frustrating for those who see that their debt list is the same length after years of paying!

Who is it good for?

The Debt Avalanche Method is good for those that can keep emotions out of it. Unfortunately, this is a very small percentage of the population. If you are, great, this method should suit you well!

Progress may seem slow because your list isn’t getting any shorter, but you must stay the course in order to reap the benefits!

This method should be used if you are looking for the quickest and most cost-effective way to say “We are debt-free!”

Trust that this method will not be easy, but it will be worth it!

Debt Snowball Method

How It Works

Debt Snowball Method:

  1. Pay the minimum payments on all debts to maintain your credit score.
  2. Direct all available funds toward the loan with the smallest balance, ignoring the interest rates.
  3. Focus your payment on that loan until it is completely paid off.
  4. Next, direct the payments from the previous loan and all available money in your budget toward the loan with the second smallest balance.
  5. Continue down the line of debts until all are paid off in sequential order of smallest to largest balance while completely ignoring the interest rate values.

Why it works

Paying loans off in order of smallest to largest balance works because you get to experience small victories faster.

Humans naturally want the feeling of success. Even if the first loan you paid off was $97 at a 6% interest rate, you will get the satisfaction of crossing that debt off your list.

It’s empowering, but more important, it’s encouraging. You will want to continue your quest of slaying debt! You will be motivated to cross-out the next item on the list!

Why it might not work

Sticking to any sort of debt payoff plan is difficult. Just because you may get to experience the small victories here and there, the entire process can be a marathon that discourages some.

Also, having the knowledge that the Debt Avalanche Method can get you debt-free faster and in a more cost-effective way can tempt you to switch strategies. Changing strategies has the potential to ruin your routine, setting your timeline back even farther.

Figure out what works for you and stick with it!

Who is it good for?

The Debt Snowball Method is good for the majority of people in debt. The small victories are going to motivate you that debt-free living is totally achievable, which it is.

You must understand that even the Snowball Method can be challenging, but by staying with this debt payoff plan your chances of success are high.

If you are looking for the most proven way to say “We are debt-free!” the Debt Snowball Method is probably your best option!

What is financial strategy?

Financial strategy is having a well defined roadmap to achieving your financial goals.

A goal of Debt-Free-Living has a direct relationship with financial strategy and can help your chances of success in a major way!

Making a Budget

Getting into debt and how to stay out of debt is closely-tied to budgeting. Spending beyond your means is a fast-track way toward staying “in the red.”

Part of your financial strategy needs to be choosing a budgeting method that fits your style and pairing it with a budgeting app to keep track of all your expenses.

Once you know where your money is going each month, you can determine what areas of your budget can be trimmed. This will allow you to funnel more money towards your debt payoff plan.

Saving for an Emergency Fund

Having a budget and a debt payoff plan is great, but without an emergency fund in place, you are creating chances for failure!

Going full steam ahead toward your debt repayment may seem like the most logical option. However, this strategy leaves you vulnerable to unexpected expenses that life throws at you.

Think of an emergency fund as buying insurance!

Without the money to pay for those out-of-the-blue type situations, you may be forced to go further into debt.

Instead do this:

Financial Roadmap toward Debt-Free Living

  1. Create a Budget
  2. Save a mini-emergency fund of $1,000
  3. Payoff high-interest debt with either the Avalanche or Snowball Method
  4. Save a 3-6 Month Emergency Fund


The moral of the story for getting yourself out of debt is to choose a payoff plan that fits your style. By taking this approach, the likelihood of Debt-Free-Living is increased greatly.

Before starting your debt-free journey a few things should be accomplished first. You should address your budget, emergency fund, and credit card usage.

With those items in proper order you a ready to get out of the red with your debt payoff plan!

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