If you are budgeting after divorce, you might be looking into the debt snowball or debt avalanche method as a way to get out of debt. Divorce is incredibly expensive. It can often leave people in financial difficulty. When rebuilding your life after divorce, you’ll need to work on paying off any debts you have. This is the only way to build a good foundation on which to start saving money. Two methods are very popular for paying off debts: the debt snowball and the debt avalanche. Each of these gives you a template for how to begin paying off your debt. However, which one you choose depends a little bit on your personality and your timeline. Hopefully, you’ll find a method that works well for you and will be able to get rid of debt quickly and begin building savings.
Budgeting After Divorce: the Debt Snowball or Avalanche Methods
Why is It Important
It’s important to get rid of debt after divorce because you will need to re-evaluate your entire budget. A divorce can be expensive. In addition, you might be working with only one income now whereas you used to rely on two. Therefore, debt can quickly get out of hand if you let it. By using the debt snowball or debt avalanche method, you can get a handle on debt early. Once you pay off your debt you can begin building savings and protecting yourself financially for the future.
Debt Snowball
The debt snowball and debt avalanche methods each start the same way. In the debt snowball method, you will figure out all of your various debts. Credit cards, student loans, auto loans, etc. It shouldn’t be used with mortgage payments, however. You’ll begin by making minimum payments on all of them except one that you’ve singled out. In the debt snowball method, this is your smallest debt.
Debt Avalanche
As opposed to the debt snowball method, in the debt avalanche method, you’ll single out your payment with the highest interest rate. With either one, you’ll begin paying any extra money you have (and money you save by only paying minimums on the others) and put it towards the debt you’ve singled out. Then you’ll move on to the next one and use the money you save from wiping out your first debt to pay towards that one. In the snowball method, you’ll move to the second smallest debt and so on until you reach your largest debt. In the avalanche method, you work from the highest interest rate to the smallest. Eventually, you’ll have paid off all of your debts.
Which is Better?
Either the debt snowball or the debt avalanche method is a great way to get in the habit of paying off debts. However, choosing which one to use is up to you. The debt snowball method sometimes is easier for people to wrap their minds around. You start small with baby steps and slowly move on to bigger and bigger debts. If you have a personality that lets you get overwhelmed easily and give up, this method is probably for you. The debt avalanche method works a little faster since you are targeting the highest interest rate debts first. You should save slightly more money to put towards your next debt each time. However, this might mean beginning with a large debt first which can overwhelm.
The debt snowball and debt avalanche money-saving methods are both great ways to begin paying down debt. In either instance, you’ll slowly target one form of debt and wipe it out before moving on to the next. In this way, you can tackle a lot of debt in an organized manner. Deciding which method you use depends a lot on your personality. If you are easily overwhelmed and knocked off track, the debt snowball is the way to go. If you’re not afraid to tackle large tasks first and have the stamina to do that, try the avalanche method. Either way, you’ll hopefully be able to pay off all of your debt quickly and begin building your savings up for your new post-divorce life.