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With this one quick trick you too can… No I can’t even finish the joke. Debt isn’t quick or easy to handle, it’s systematic and requires self-control and a decent dose of Stoicism. I touch on the importance of debt reduction in my Investment Order post.
I want to be consistent with my readers so I really do want to stress that an Emergency Fund with a minimum of $1000 or 1 month’s expenses should be the #1 priority before investing in any way shape or form. After that we want to really focus on any debts exceeding 9% in interest. This could be many things, but credit cards are the primary issue for many people.
Debt paydown is generally attacked in one of two methodologies. The Snowball, or the Avalanche. Not to be confused with our Dividend Snowball. The Debt Snowball prioritizes debt based on balance. Clear the small ones and throw that money at the bigger ones, balance wise, mainly ignoring interest rate. Psychologically this method attracts the most people. It’s pretty famously touted by Dave Ramsey.
The Debt Avalanche is where you attack the highest interest rate debt first regardless of balance because it’s going to cost you the most money loss over time. This method requires, self-control, determination, and a clear budget for most people to pull off.
I like math, so lets take a look. $15,000 in Credit Card Debt at 21% (the 2025 national average), $10,000 in Student Loans at 6%, and $25,000 in an Auto Loan at 5%:
| Debt | Balance | Interest Rate | Estimated Min. Payment |
|---|---|---|---|
| Credit Card | $15,000 | 21% | $450.00 (better not still be spending) |
| Student Loan | $10,000 | 6% | $111.00 (10 year standard) |
| Auto Loan | $25,000 | 5% | $472.00 (5 year/60 month loan) |
| Total | $50,000 | $1033.00 /month |
The Snowball says pay down these based on balance first. Lets imagine that you’ve buckled down your budget and that Credit Card is frozen in your freezer, no more purchases and you have all your bills handled. You started making $200 extra a month with Game Grinding. $200 isn’t a lot of extra to throw at these debts, but we haven’t even tackled the Power of Frugality here yet so I feel it’s realistic.
At $311/month toward the Student loan it pays off in 3 years or 36 months. Your total interest paid is $929 instead of the original schedule $3,322. You’ve saved. $2,393 and 7 years of that debt.
| Debt | Original Balance | Balance after 36 Months | Change | Total Paid | Interest Paid |
|---|---|---|---|---|---|
| Credit Card (21%) | $15,000 | $5,707 | $9,293 | $16,200 | $6,907 |
| Auto Loan (5%) | $25,000 | $10,746 | $14,254 | $16,992 | $2738 |
| Student Loan (6%) | $10,000 | $0 | $10,000 | $10,929 | $929 |
| Total | $50,000 | $16,453 | $33,547 | $44,121 | $10,574 |
Now we can finally “snowball” our debt payment, adding the $311 we were putting on our Student Loan to the next lowest principal debt, the Credit Card, making our new Monthly Payment $761. This takes us 9 months to pay off the remaining CC balance, a total of 45 months. The final Payment was only $84, so $677 extra went onto the Auto Loan on Month 45. Now our debt Snowball is up to $1,233/month onto the remaining $6,601 of Auto Loan. Only 6 months till debt free. Final payment will leave $707 extra that month.
| Debt | Original Balance | Balance after 9 more months (45 cumulative) | Total Paid in 9 months | Interest Paid |
|---|---|---|---|---|
| Credit Card (21%) | $15,000 | $0 | -$6,172 | $465 |
| Auto Loan (5%) | $25,000 | $6,601 | -$4,925 | $308 |
| 6 months later (51 months total) | ||||
| Post 6/m Auto Loan | $25,000 | $0 | $6691 | $90 |
51 Months, 4 years and 3 months to pay off $50,000 of debt, the Snowball method charged us $11,437 in interest. Using a total of $ 61,437.
We’re hitting long blog status and I don’t like it so we’re going to Avalanche in 1 paragraph and 1 chart…I hope.
Avalanche method. We’re going to pay the highest interest debt first. $650 a month. This pays off the CC in 30 months instead of 36 months. The Student Loan falls at 41 Months, and the Car at 48. This saved us 3 months of our time, and hopefully $1,333 that we can start fueling our investments with, but the bigger win is that it saved us $2,379 in interest.
| Debt | Original Balance | Months to Finish | Total Paid | Interest Paid |
|---|---|---|---|---|
| Credit Card (21%) | $15,000 | 30 Months | $19,381 | $4,381 |
| Student Loan (6%) | $10,000 | 41 Months | $11,595 | $1,595 |
| Auto Loan (5%) | $25,000 | 48 Months | $28,082 | $3,082 |
| Total | $50,000 | 4 years | $59,058 | $9,058 |
~~Miniwing~~