What is the best way to pay off debt?

Once my clients and I are able to determine what amount of money they really have leftover each month, we focus those funds towards a goal they may have. For some, it may be to save for a down payment on a home, start investing for retirement or save for a big vacation. But for some of my clients, their first goal is to pay off debt.

A question I get asked a lot is what is the best way to pay off debt?

I answer this question the same every time, but the final answer is not the same for each client.

Some clients are motivated and will sacrifice a lot to get rid of their debt as quickly as possible. Others may need motivation and love having quick wins. There is a debt payoff strategy for each.

I start by sharing 4 different strategies, then I find which one motivates my client!

1) The Snowball Method - Paying off your debt with the lowest balance first while making minimum payments on everything else. Once the first lowest balance is paid off you roll that payment into your next lowest balance. This can be good for someone who needs motivation. You are getting quick wins, and building motivation to keep going!

2) The Avalanche Method - Paying off your debt with the highest interest rate first while making minimum payments on everything else. Once the first highest interest rate balance is paid off you roll that payment into your next highest interest rate balance. This is good for clients with high-interest credit cards or a payday loan. Paying this off quickly will save you a lot of money in interest.

3) The Highest Monthly Payment Method - Paying off your highest monthly debt payment first while making minimum payments on everything else. Once the first highest monthly debt payment is paid off you roll that payment into your next highest monthly debt payment. This may work well for someone with a tight cash flow as they are working to get rid of their highest payment. This eventually frees up that money to start using for other goals.

4) The Emotional Baggage Method - Paying off whatever debt you have that gets you angry every time you see it! You pay this off first while making minimum payments on everything else. Once this is paid off, then you can re-evaluate these strategies again and find the next best one for you. This can work well for someone who has a debt from a divorce, medical surgery, or any other debt that stirs up bad feelings. Paying this off first allows them to put it behind them and move on with their life.

There is no right or wrong answer here. There are pros and cons to each method. Each person must choose which strategy they feel is best for them.

My goal is to help my clients find a sustainable way to pay off their debt. If you want help figuring out which debt payoff strategy works best for you and how I can help you create a plan to pay off your debt, click here to learn about the Clarity Session.