There are two ways that you can pay off debt: the debt snowball method and the debt avalanche method.
When I discovered Dave Ramsey who is billed as “America’s trusted voice on money”, he spoke about the debt snow ball method and that is what I used. Under the debt snow ball method you list your debt from least to greatest and pay off the least amount of debt first. Once you pay that debt off, then you add whatever your monthly payment was to your next lower debt and you in effect create a snowball knocking out your remaining debt.
For example, below you see a list of debt from the least to the greatest as well as the monthly payment. Once you pay off the first debt, Chase Credit Card, you take that monthly payment and apply it to the next debt.
It will take you a little over three years to pay off the Chase Credit Card as long as you also do not increase your debt on the card. Once you pay off the card, then you take that $150 and add it to the $175 = $325 monthly that would go towards the Bank of America Card.
Ex. 1
| Name of Debt | Total Monthly Payment | Total Due |
| Chase Credit card | $150 | 6,000 |
| Bank of America Credit Card | $175 | 7,500 |
| Sallie Mae | $300 | 40,000 |
| BOA Private Student Loan | $400 | $55,000 |
Exh. 2
| Name of Debt | Total Monthly Payment | Total Due |
| Chase Credit card | $150 | 6,000 (paid) |
| Bank of America Credit Card | $325 | 7,500 |
| Sallie Mae | $300 | 40,000 |
| BOA Private Student Loan | $400 | $55,000 |
When I was paying off my debt I had a spreadsheet on my refrigerator. I would cross out each debt and then compute how much longer it would take to pay off the next debt. For the example where the person has INCREASED their monthly payment of the Bank of America Credit Card from $175 to $325, the payer would be paying $3,900 annually toward their debt and have the Bank of America card paid off in two years.
So in five years, a total of $13,500 has been paid off!!!!!
Ex. 3
| Name of Debt | Total Monthly Payment | Total Due |
| Chase Credit card | $150 | 6,000 (paid) |
| Bank of America Credit Card | $325 | 7,500(paid) |
| Sallie Mae | $625 | 40,000 |
| BOA Private Student Loan | $400 | $55,000 |
Now the consumer has added the payment from Bank of America to the Sallie Mae student loan paying $625 per month on a $40,000 student loan. That amounts to an annual payment of $7,500 and paying off Sallie Mae in 5.5 years.
So far this consumer has been paying off debt for 10 years. Amazingly, this debt also includes consumer debt such as credit cards.
The last debt is the Bank of America Private Student Loan. The consumer would take the $625 (a total of the Chase Credit Card, Bank of America Card and his/her Sallie Mae Loan amount) and add it to the $400 for a total of $1,025 per month to the loan.
Exh. 4
| Name of Debt | Total Monthly Payment | Total Due |
| Chase Credit card | $150 | 6,000 (paid) |
| Bank of America Credit Card | $325 | 7,500 (paid) |
| Sallie Mae | $625 | 40,000 (paid) |
| BOA Private Student Loan | $1,025 | $55,000 |
For your last loan, the payer would be putting $12,300 annually towards their student loan debt. The last loan would be paid off in 4.5 years (approximately). That is 14.5 years of paying off student loan debt.
So let’s assume you graduate from college by the time you are 23. In 14.5 years you will be 37.5 years old. That’s actually not a bad age to be completely debt free. This analysis also does not account for pay raises you would get over the years that could be applied towards additional payments.
On the other hand is the Debt Avalanche Method. Under the Debt Avalanche Method, the consumer would pay the debt with the highest interest rate off first calculating their monthly payments and then would stack that paid amount to the NEXT LOWEST interest rate. So the payment would be in the following order:
21.99%
19.90%
13.90%
8.0%
6.24%
5.50%
2.70%
0.00%
I do not like the debt avalanche method because it seems like it would take too long to get out of debt. If you look at the above scenario, this person has a minimum payment of $30.00 per month and a MasterCard with a balance of $3,322.58. It would take this person almost NINE years to pay off this high interest master card. It would seem to make much more sense, in my opinion, for the person to pay off the personal loan which is $634.21. At $50 of a minimum payment, this can be paid off in less than a year (10 months). S/he could or should then take that $50 and add it to MasterCard #2. They would in essence by paying $65 monthly on a $967 debt. The MasterCard could be paid off in 15 months and then be added towards the loan to mom if mom wants the loan at this time. If she doesn’t then the payer can attack Master Card #1, pay $95 monthly towards that loan and have it paid off in three years versus the ten years under the debt avalanche method.
You can choose which method you want but in my opinion, the debt snow ball method is the best method to use.