How to pay off your debts quickly: using the Avalanche and Snowball methods! This is the first in a series on personal finance for beginners, enjoy!

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The avalanche method prioritizes paying off debt at the highest interest rate. The snowball prioritizes the smallest balance.

Let's say you have 3 sources of debt
Car payments, credit card payments and student loans.
-You owe $9,000 on your car and your interest rate is 3%
-You owe $10,000 on your credit card and the interest rate is 18.99%
-You owe $15,000 in student loans and the interest rate is 4.5%.

In the avalanche method, you first pay off your credit card balance, then student loans, and finally the car payment. (10,000, 15,000, 9,000).

In the snowball method, you'll pay off the car payment first, then the credit card, and then the student loans third.

Now, in this HYPOTHETICAL example, let's say you can pay off 3,000 in debt per month (just as an example). The most financially efficient method is the avalanche method, and by making this order you will pay $1,011 in interest, compared to $1,514 in interest if you used the snowball method. The difference will be magnified even more if you can't pay off 3,000 in debt per month.

So while the avalanche method can pay off your debt more efficiently, sometimes the psychological gains are MUCH greater in doing so.

Personally, I think that progress in any area is better than nothing – and if you're the type of person who can stay disciplined when it comes to paying off debt – the avalanche method is the way to go.

▶️ My name is Humphrey Yang, I'm an entrepreneur who has built businesses and is passionate about personal finance. This channel is dedicated to helping people (whether you're 21 or 81) become better at personal finance, investing, and entrepreneurship. I hope these videos help you!

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