Inside: A lot of people will tell you THIS way or THAT way is the best way to pay off debt. But, here’s what actually works, according to the data.
I and many other people often ponder, “what’s the best way to pay off debt?”
Some gurus will try to sway you one way or another. If you don’t choose their method, you’re an idiot. If you don’t do it this way, you’ll drop off the bandwagon and be in debt until you’re 104. If you choose yet another method, your pants will catch on fire and mushrooms will explode out of your ears.
It’s enough to drive anyone crazy.
That’s why I decided to cut past all the noise and brouhaha to see what actually works for people who’ve successfully paid off their debt (thanks, grad degree I mostly haven’t used yet!). I surveyed 25 different people who’ve actually paid off all their debt—mortgage included—to see what method worked for them.
But I didn’t stop there. Mostly because I’m a data nerd. (My ever-multiplying spreadsheets and ever-deafening husband will attest to that fact). Also, I thought that maybe there were certain factors about a person’s situation that might lead them to choose one method over the other.
In addition to which debt-payoff method people chose (if any), I also asked them the following questions:
- Why did you choose this method?
- What was your average salary while paying off your debt?
- How much debt did you pay off?
- How long did it take you to pay off all your debt?
What are the different debt payoff methods?
Let’s drop down for a quick refresher.
Most people who pay off debt use one of two methods:
The debt snowball method lines up each of your debts in order of smallest-to-largest balance. You pay off one debt, then apply that payment to the next debt, until you’re making massive payments at the end to kill your debt quickly.
The debt avalanche method works the same way, except you organize your debts from highest-to-lowest interest rates. The idea is that much like a money-grubbing gold digger, you get rid of that mostly costly expense right quick.
The debt snowball method is often referred to as the more emotional-based method, because you get a series of quick wins by paying off your smallest debts first. The debt avalanche method is referred to as the math method because mathematically, it makes more sense and you’ll pay less money in interest.
- 0.1 Which debt payoff method do successful debt-payers prefer?
- 0.2 Does income affect which method successful debt-payers chose?
- 0.3 Which debt payoff method works the fastest?
- 0.4 Does debt load affect which debt payoff method successful debt-payers chose?
- 0.5 What do the successful debt-payers have to say for themselves?
- 1 So, what is the best way to pay off debt?
Which debt payoff method do successful debt-payers prefer?
Looks like we’ve got a pretty even spread. People who have successfully paid off all their debt have used a wide range of methods to get there (take that, Schmave Pamsey!).
Does income affect which method successful debt-payers chose?
One of my hunches is that people who need cash flow today will choose the debt snowball method. It frees up more of your monthly income faster, which you can then choose to pay off the rest of your debt or to pay off your overdue electricity bill. Priorities.
Here’s how much people were making on average according to each debt payoff method:
It looks like people making less money are more likely to choose the debt snowball method over the debt avalanche method. But, there is no statistically-significant difference between these two groups according to the fancy stats test I ran (a two-tailed T-test with unequal variance, if you’re nasty).
It’s possible that this result is real, and successful debt-payers of all incomes are equally likely to choose between the debt snowball or the debt avalanche method. Or, maybe there really would have been a difference if I had a larger sample size. It’s also theoretically possible that invisible pocket hamsters have somehow mucked up the data.
Which debt payoff method works the fastest?
Having a plan to pay off your debt—any plan—is better than no plan.
What’s even more interesting is that there is also no statistical difference between the debt snowball and the debt avalanche methods in terms of how long it takes to pay off your debt.
Related: Undebt.it tells me that I can be debt-free one month earlier by choosing the debt avalanche method.
When you look at the numbers, often it’s faster to pay off your debt using the avalanche method vs. the snowball method. For individuals, that’s generally true. But when you look at groups of people as a whole, it doesn’t appear that choosing one method over will get you there faster.
Does debt load affect which debt payoff method successful debt-payers chose?
One of the things I’ve wondered is whether how much debt you’re in affects which method you’re more likely to choose.
If you’re facing a big ‘ol stinky pile of debt, are you going to take a shortcut to pay off the quickest debt possible, or stick with it for the long haul of the debt avalanche method?
I’m glad I asked, my friends.
Once again, it looks like people who went the debt snowball route had less debt on average than people who chose the debt avalanche route. However, this too was not statistically significant (d’oh!)—so, technically, people’s debt loads had no effect on which method they decided to go with.
What do the successful debt-payers have to say for themselves?
I asked everyone who took the survey one final question.
Why did you choose your specific debt payoff method? Anything else you’d like to add?
Here’s what they had to say:
Those who chose a combination of debt snowball and debt avalanche methods:
“I found it impossible to follow one strategy the entire time. Better to take advantage of whatever motivated me the most on a given month, rather than follow one strategy during the entire debt payoff time.” — The Biglaw Investor
“Mine was a combination of debt payoff methodologies, but the biggest contributor was focusing on the highest monthly payments first to improve cashflow. Any big inflows (bonuses, etc.) went to debt paydown. The last big push was when we bought a less expensive house with cash after reaching FI.” — John from Present Value Finance
“We started with credit card debt that had a zero percent promo rate months away from expiring. From there, we tried the debt avalanche.” — Claudia from Two Cup House
“We did a slightly modified debt snowball. My husband’s student loan should’ve been second but didn’t have a minimum payment so we went with my bigger, higher interest student loan before his. I can see why putting the biggest loan at the end is best. After we made it through the big one we lost some steam starting the last one.” — Jen Smith at Saving With Spunk
Those who chose the debt snowball method:
“I paid off the zero percent interest credit cards first which seems nuts to most people but the psychological boost of debt snowball can’t be underestimated.” – Millennial Boss
“Psychologically, the snowball method gave motivation. Plus we were paying off so aggressively that attacking highest interest rate first would have only saved less than $50.” — DIY Money Stuff
“Seemed to make the most sense.” — Budget On A Stick
“We inadvertently started using the debt snowball method without realizing it. By the time I’d paid off my student loan and discovered the snowball method while researching methods to include in my Pay Off Debt app, we were down to only our biggest debts anyway. (My husband’s car, our home improvement loan, and our house.) So it was easy to just keep on with the next debt in the list.
The debt snowball method IS highly motivating, which is why it works so well for so many people. Also of course the power is in the fact that you keep increasing your payments over time as you pay off more and more of your debt — because you have more money available to do so. You can read more about our story here if you’re interested.” — Jackie Beck
Those who chose the debt avalanche method:
“Common sense. Knocking out high interest first.” — Rich from Rich On Money
“Because math.” — Waiting To Be Zapped
“I was doing the debt avalanche, though I don’t think I knew the concept existed. The math just made more sense to me, if I have $1,000 to go towards debt, I’d rather put it against a balance that has a 15% interest rate than one with 7%.” — Tom Drake from Maple Money
“Our only debt at the time was our mortgage so it was a matter of just paying it off as fast as we could. When we decided to go after paying it off, we cut a lot of expenses and did our best to get debt free as quickly as we could.” — Family Money Plan
Those who chose no method:
“For years, we were down to only mortgage debt. In preparation for FIRE, we sold our ‘bigger’ house in the city and moved to a ‘smaller’ cabin in the mountains. We used the equity from the big house to payoff the cabin.” — The Retirement Manifesto
“We paid off our household debt in large chunks as we saved money over time, starting with student debt, car loans and finally mortgage.” — Max from Max Your Freedom
“All my debt was car debt (6k) and student loans. I sold the car to wipe out the car debt and started bussing and biking instead. As I started making more at my job (from 10k a year to 32k a year) I avoided lifestyle inflation and threw everything at my remaining debt. I did start dividend investing before the student loan was gone, because it was only 3.4%, but then I got impatient and just paid it off cause I was tired of Navient’s shady business practices and never wanted to deal with them ever again.” — Anonymous
Those who chose some other debt payoff method:
“We spent the first three years trying the ‘slash and sacrifice until paid off’ method and kept falling off the bandwagon. I was tired of reading books and materials that said, ‘sacrifice now and then you can go back to getting your nails done after the debt was paid off’ because it didn’t make sense that you made a temporary, crash diet approach, just to fall into the same old bad habits. The heart of the issue, along with the debt needed to be addressed.
That’s when we adopted the 2% rule to get debt free fast. It is a gradual approach that starts off very small and builds on top of itself with huge, exponential payoff abilities in a short time, but without the emotional trauma and difficulty of trying to pull off those crash diet approaches. In the end, the debt is paid off fast and the lifestyle hasn’t been sacrificed.
The order in which debt was paid off was using a method and worksheets that organized your debt into groups based on various factors (i.e. interest rate, balance, fixed or adjustable rate, etc.) once these were categorized into groups, then each group of debt was tackled. Within each group, the debts were given a priority of payoff based on the other factors. This allowed for the balance, interest rate, and the type of rate to be factored in to reduce the amount of overall interest and allowed for the highest amount of cash flow each month to be thrown at debts.” – Alex and Cassie Michael from The Thrifty Couple
Related: The 2% Rule To Get Debt Free Fast: An Innovative Method To Pay Your Loans Off For Good by Alex and Cassie Michael (yep, that’s them!)
“We had a lot of debt but were also investing a ton of money as well. The problem was that we wanted no debt but the returns on our investments were way better. So, we split the difference and every time we wanted to invest in something, we’d do a smaller investment and pay some of the debt off.” — Eric Bowlin from Ideal Real Estate Investing
“Our payoff was done in one fell swoop. It was due to geoarbitrage. We sold a condo and moved out of high cost NY at the height of the real estate market, to lower cost NC. I know this might not fit the conventional model but it’s something to think about for those who are in the position to relocate (or downsize, or take in additional renters, or rent out space in their home through airbnb, or rent a trailer instead of an apartment, etc. etc.) Since housing expenses, whether you own or rent, often eat up more than 50% of your monthly nut if you live in a high cost area, a radical shift can really pay off.” — Mr. & Mrs. Freedom Is Groovy
“We paid off our debt (mainly mortgages) as a means to retire early. We sold both of our homes and bought an Airstream and travel the country for a living, completely debt free. We had relatively little credit card debt and always pay them off month-to-month.” — Steve from Think Save Retire
So, what is the best way to pay off debt?
What can we learn from all of this seemingly gobbledeygook?
What stuck out to me most is that there is no one best debt payoff method. There was no statistical difference for any of the debt payoff methods in terms of what’s best for certain incomes, debt loads, or time to debt payoff.
Rather, each person had several things in common: they hustled, they sacrificed, and they made debt payoff a priority. In some cases, they had a little bit (or a lot) of luck.
So, bust out that lucky rabbit’s foot, get your mindset right, pick whichever debt payoff plan makes sense to you, and get your ass into gear. You’ll smoke that debt before you know it.
What was your takeaway from seeing what the successful debt-payers did? Leave a comment below!