Whether you are swimming in student loans or overwhelmed by bills – Gianna Drake-Kerrison of UBS Financial Services Inc. provides us with three different ways you can tackle your debt:
- Math Method: to use the Math Method (often referred to as the Avalanche Method) you start by lining all of your debts up by interest rates. Drake-Kerrison explains that, once you have completed this, the next step is to pay off your debts in order of highest to lowest interest rates. This method, financially speaking, is the best. Unfortunately, you may run into some trouble with motivation using this method. Motivation is a key component when it comes to successfully paying off debts. Which brings us to…
- Momentum Method: (aka the Snowball Method) is probably the most efficient method to keep yourself accountable and to keep the momentum going. Instead of listing everything by interest rates, you will be listing everything by balance – starting with the smallest of all the balances you owe as #1 on that list. Drake-Kerrison explains that with this tactic, you ONLY pay off the minimum amount for all of your debts except for the one with the lowest balance. All remaining available funds go towards paying off this first debt. Since your first debt listed is smaller, you will pay it off faster, thus creating momentum and motivation to continue paying off the rest. This is the perfect method for you if you have trouble remaining disciplined and strict with yourself.
- Shotgun Method: while the Shotgun Method is usually the most common technique used, it is actually the least effective. The Shotgun Method includes throwing a little extra money at each debt on your list. Drake-Kerrison explains that because your brain signals that you should not just pay the minimum, you believe that throwing an extra $20-50 will help further you along. Unfortunately, using this particular tactic results in very little progress since interest will continue to accrue on each debt while making you no closer to striking any of them off your list.
Alanna Ritchie additionally provides us with some tips and tricks to make sure you are financially literate. Ritchie’s article, Financial Literacy—Guide to Personal Finances dives deep into the importance of financial literacy, and the ways in which it is crucial to stay on top of your personal relationship with money. This guide covers a variety of resources ranging from personal finance basics, to budgeting, to credit scores, as well as additional ways to pay off debt – and more.