Because the site prep for the small house building project is underway, we are holding on to our cash this month to cover any expenses that we hadn’t anticipated, so we aren’t making any extra payments towards our debt. If there any surprises, like extra fees from utilities, I want to be ready with $ to avoid any delays.
While we wait for the site prep to be completed, I thought I would reconsider our debt payoff strategy. Previously, we’ve used the debt snowball method. If you’ve ever heard of Dave Ramsey or the debt snowball method he recommends, then you’re probably familiar with the approach: pay off the smallest debt first, repeat until you get to the largest debt by applying the payments you’ve saved along the way from the debts that are paid off.
Related: Our Path to Debt Freedom
However, I came across a new-to-me tool for calculating debt payoff, Unbury.me. This tool compares the debt snowball method to the debt avalanche method.
Debt avalanche is pretty straightforward: pay off loans and other debts with the highest interest rates first. How does debt snowball stack up against debt avalanche?
Using Unbury.me, I put together hypothetical situations using three popular debts.
- car loan, $17k balance with 6.55% interest
- student loan, $30k balance with 3.5% interest
- mortgage loan, $150k balance with 4% interest
Additionally, I’ve added an extra $1k in monthly payments to make the total monthly payment $2,700; the screenshot is of minimum payments only.
Screenshot from the Unbury.me Calculator
Overall, if you haven’t visited us before, then you should know that we feel our debt is bad debt, “credit” is bogus and “appreciation” is a dream. We are paying banks for things we couldn’t afford anyway, and on top of that, we have to pay interest. Because we’re paying debt, we aren’t investing, so we aren’t earning; it’s a long road to debt freedom and financial independence/early retirement.
What does the debt avalanche plan look like in dollars and cents?
What does the debt snowball plan look like in dollars and cents?
What’s the conclusion? Debt snowball or debt avalanche?
According to the hypothetical scenario above, the debt avalanche plan saves $927.07 and ends one month earlier than debt snowball. This saves time and money, so I would call this a win-win situation!