Snowball vs Avalanche

14Aug08

I’ve been doing a bit of early morning reading on the snowball vs avalanche method of debt elimination. Either way, it seems that the consensus is that you pay off your card with the higher interest rate first, and that is the most effective. 

What if your card with a higher interest rate has three times the balance as your card with a slightly lower interest rate? It seems like it would be beneficial to work on paying off that card and then tackling the card with the higher balance? Because then you are playing finance charges once, not twice. 

Since returning to school, I’ve received notice that my student loans will be in deferment. At first I was uneasy about this, because its not very much and I feel like I can afford to pay the $200/month in student loan payments…but quickly decided that since my student loan interest rate is so low, its a better use of resources to put that money towards my bad, high interest debt. 

Which got me to thinking…do I really have any business saving money in sub accounts? Not really. I am paying more in interest than I could ever make saving money, I have a secure (hey! get back to work!) job that allows me to go to school for free, so while an emergency fund makes me feel good, its probably not as necessary as it would be if I felt my job were in jeopardy? 

What do you think about saving while in debt? Should I be putting everything towards my debt? Or is it a good idea to have an e-fund around…just in case, but put the other funds on hold?


Filed under: debt, goals, money, saving, working   |  2 Comments

2 Responses to “Snowball vs Avalanche”  

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  1. 1 FruGal on August 18, 2008 said:

    I’m a big believer in using all your spare money to repay debts, rather than leaving it sitting in a savings account. Ahy? Because whenever you have debts you are losing money in interest payments, so the quicker you repay them, the cheaper they will end up being overall. Your money is not working for you when it’s sitting in a savings account if you are simulatneously being charged interest.

  2. 2 JB on August 18, 2008 said:

    Personally, I like the Dave Ramsey approach of saving $1000 or so and then attacking your debt with the rest.


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