Avalanche or Snowball? Which Debt Do I Actually Pay First?

The math says pay one debt first. Your gut says pay a different one. And being stuck between them is costing you more than either choice would.There's a real answer to this, and it's not the one the spreadsheet people fight about online. This is the question that paralyzes more people than any other financial question.And the right answer might be the opposite of what you've been told. So stay with me today, and we're going to settle it on today's show. Hello and welcome to Financially Confident Christian.I'm Ralph Estep Jr. And thank you so much for joining me today. And we are going to settle a debate that I hear all the time, and that's the debt payoff debate. Do we use the avalanche method?Do we use the snowball method? And. And which one is actually right for you? We got a question from a listener. This listener's got several debts.They're different sizes and there are different rates.And I'm going to start by saying the math says one thing, but this listener's heart's telling them something else, and they're frozen between which one to pick. And when you're drowning in payments and somebody just shouts at you, well, Ralph, just do the math.It can feel like they're actually ignoring the heaviness this actually has on your heart. Now, maybe right now you're trying to navigate a difficult financial situation, or maybe you've got a win. You want to share with me on the show?I'd love to hear from you. You can go to FinanciallyConfidentChristian.com/question.We'll put a link in the show notes, but you can go to financiallyconfidentchristian.com/question because I love answering questions. And here's today's listener question. Listener writes this. Hi, Ralph. I got four debts.I got a big credit card at a really high interest rate, almost 24%. I got two smaller cards and a medical bill that's been hanging over me for a year.Every article I read says to pay the highest debt first because it saves the most money. And I get the logic, but honestly, that big card feels so huge that throwing money, it feels like pouring water into the ocean.Months go by and the balance barely moves, and I get discouraged and I just stop trying. Part of me wants to knock out the two little cards so I can feel like I'm actually getting somewhere.But then I feel guilty, like I'm being dumb on purpose and just ignoring what they call the smart math. So I end up doing a little bit of everything and I'm making no real progress on anything. I'm tired of spinning my wheels.Ralph, which way is actually right? Thanks for helping me get unstuck. Well, thank you for sending in that question. And yes, my goal today is to help you get unstuck.Because here's the thing. I want you to understand from the very beginning. The best debt plan isn't the one that looks best on paper.It's the one that fits your life, and it's the one that you're actually going to finish. So let me dispel the rumors right now. Both of these methods work, and they work great. The one that fails is the one you quit doing.So let's give you a real decision, not a debate today. Let's start by addressing the main purpose of this. You got to know what you're actually choosing between. You may be listening right now.You're like, ralph, I have no idea what you're talking about. What does avalanche? What does snowball mean? It's summertime here in the east coast, and I'm not even thinking about building a snowman.These are two proven methods. The only difference between the two is how you decide on what the order of attack is. Let me jump into it. So, the avalanche.With the avalanche method, you pick the highest interest rate first. You basically list your debts. Whatever has the highest interest rate first is the one you start to knock down.What that does is it saves the most money over time. If you think about it, that's logical. You pick the one with the highest interest rate, you pay that one first.Now, the snowball method picks the smallest balance first. Look at that list again. Instead of the rates, now we're listing them by biggest balance to smallest, and you start at the bottom.The reason you do that is gives you a quick win and quick momentum. Think about that snowball that you build, and you put it at the top of the hill and you push that thing.And as it's rolling downhill, it's getting bigger and getting bigger. It's that quick win, but it builds momentum.Now, in both of these, you pay the minimums on everything, but you throw that extra dollar at that one target, whether it be the avalanche target or the snowball target. And here's the thing you need to hear.The actual dollar difference when you do the actual math between those two things is usually a lot smaller than people think. Honestly, it's only usually a couple hundred dollars over the whole journey. So you mentioned something in your call about being dumb.It isn't smart versus dumb. It's Math Motivated versus momentum motivated. In the end, both of these roads reach the same place.The only question is which one you'll keep walking. So we got to have a little heart moment here. We got to be honest about what keeps you going.And this is going to change depending upon how you see the world. You know, and you've already told me your answer. That big car, you said it yourself. You said, ralph, that big car discourages you, and you quit.Because you look at, you're like, I'm never going to get anywhere. That's not weakness. That's data about how you're wired. And that might not be the same as I'm wired or the other people joining us today are wired.If watching a balance hit zero lights a fire in you, then snowball is clearly your method. You need those quick wins, and you need that momentum.Now, if you're wired differently and saving the most money keeps you disciplined, then avalanche is your method. But the whole idea here is the plan that keeps you in the game beats that perfect plan you abandoned in March.The best method for you is the one that's still working six months from now, because you're not going to solve these issues overnight. So for you, I want you to start with a win. Based on what you described, I'd point you to the snowball method.Make a list of those debts and knock out that small card first. Because for you, it's going to break that cycle of starting and quitting. That's what you're telling me. You're saying, rob, I start, I quit.Nothing works, and nothing breaks it like a finish line. If you can see that finish line, I've got that card paid off. You can celebrate that.So take that smallest card and throw everything out it, close it out, be done with it, and then roll that whole payment onto the next one and the next one. That's where the snowball gets its power. It gets bigger as it grows. And you might be saying, wait a minute, Ralph, but.But aren't I ignoring the math? No, you're not ignoring the math. You're buying the motivation. And that makes the math possible. Because you don't need a perfect plan.You just need a quick victory. But here's one thing you need to be aware of. Don't let that big card grow while you work. One caution.That 24% card can balloon while you're focused elsewhere, so make sure you're paying the minimum. Don't let that continue to grow. Here's what happens.A lot of times, people focus so much on that small card that they forget about making payments on the others. And those things cost you money. Here's another thing you can do and a lot of people don't believe me.Call the card issuer of that 24% rate and ask them for a lower rate. Yes, just try it. What do you got to gain? What do you got to lose? Try works more often than most people expect.Another thing you could consider and be careful with this one, you might consider a balance transfer. Bring that interest rate down, but just be careful that you don't go charge up the credit card again.But protect that big one while you conquer the small ones. As I said here in my notes today, guard the giant while you build your strength to face it.One more thing I'm going to encourage a lot of people don't do this step. But this is the real secret to this. Make it automatic and make it visible. All of us can make plans in our head. Those are just a wish.But a plan on autopay, that's a system. So the first thing I'm going to encourage you to do is go out to each of those debts and set that minimum to pay automatically.You might pay more, but set it up automatic payment for the very minimum. Most of the credit cards, most of the loans I've seen give you that option.You can check a box, pay the minimum and then you put your attack payment on a scheduler too right after payday. This way there's no willpower. And then track it somewhere you'll see it.I like a chart on the refrigerator, maybe an app and anything that shows that balance dropping. Watching it move is the fuel that keeps you going. Money you have to remember to pay is money that you're going to forget to pay.But I want to go a little deeper into the faith component of this because you said something that broke my heart. You said you feel dumb on purpose for wanting to quick win and I want to gently correct that from you.Wanting to see progress isn't a character flawless. We all want to see progress. God built you with the need for hope. He built all of us that way. And here's what faith doesn't promise us.It doesn't promise that the debt's going to vanish overnight. I'm sorry to burst your bubble. It's not going to vanish overnight and it doesn't promise that the big balance is stop going to feel heavy.That 24% is going to continue to bother you and it doesn't promise this will be quick.But here's what our faith does promise us, it promises that the God who finishes what he starts is the same God walking you through this one balance at a time. Scripture tells us, it says he began a good work in you and he'll carry it on to completion. That's not just about your soul.It's about the way he sustains you through long, hard things. Listen, this is a long, hard, hard thing. It's going to take a dedication. But you're not measured by how fast you climb out of it.You're measured by whether you keep climbing. And every zero bounce is a small victory. We're celebrating.So today, take that win, celebrate that first zero, and let that victory carry you on to the next one. Friend, hear me on this. Your question made me think that you think you're bad with money. You're not bad with money.You're just someone who needs to see hope to keep going. And that's most of us. So today, stop spinning your wheels and start stacking those wins. Here's your win for today.I want you to list all four of your debts on one page.And for you, I want you to list smallest balance to the largest and then pull each balance and minimum payment circle the smallest one that's going to be your target and decide $1amount you're throwing at that this month. You're not going to pay it off today. You're just naming the finish line.You're putting it to where you can see it because you can't win a race you haven't drawn the starting line for. So that's my encouragement. That's my win for you for today. Well, let's get right to our Bible verse today.It comes to us from the book of Galatians, chapter 6, verse 9. And this one will just reassure you again. Galatians 6, 9, it says. So don't get tired of doing what is good at just the right time.We will reap a harvest of blessing if we don't give up. Don't give up today, friend. The whole struggle was getting discouraged and giving up part way. This verse speaks straight to that.Keep going, the harvest is coming. That promise is tied to not quitting, which is exactly what the snowball protects us. Just think about it as faithful, steady effort.That's what scripture honors. It's not speed in the race. Let's close in prayer today.Heavenly Father, I bring before you someone who's tired of starting over, who wants to do the wise thing, but keeps losing heart.And they're not asking for some miracle handout they're asking for strength to finish, Lord, give them that first victory soon and let that light a fire that doesn't go out, that doesn't get extinguished.Study their hand and keep paying faithfully even when it feels slow and tedious, Lord and take away that shame they care about needing to see progress. Remind them that you finish what you begin and you're not finished with any of us.Walk with all of us as we try to get better at this as we walk to those zero balances till we get to that point where all the way we're free and we ask this in Jesus name, Amen. Let's go back to the beginning of today's show. You came in stuck between two roads, but now you're leaving with a direction and a first step.That debate that paralyzed you is settled. Pick the method that keeps you moving and that's your quick win for today. So again, understand both methods. Choose based on how you're wired.Start with a small win, protect that high rate automate and track it. Trust me, you can do this. I have confidence in you.And if you're facing a battle right now, if you're dealing with some financial issue or some struggle, I'd love to hear from you. You can record a voicemail for me. Just go to financiallyconfidentchristian.com/voicemail. We'll put a link in the show notes and it's super simple.Just click the link, click record and I'll hear your voice and I'll play your call on the show Again. That's financially confident Christian. Thank you for joining me today. Stay encouraged. Stay financially savvy. God loves you. He blesses you.I want to encourage you to have a great day.