Thembi Kandanga

We have all been there before – some worse than others. We get our first job after university and banks start offering us credit cards, personal loans, overdrafts and revolving loans; we don’t need and certainly cannot afford. 
Having fallen prey to a few of these tactics myself, I know how things can get out of hand quickly. On top of that, you might have student loans, clothing accounts or medical bills that have piled up. If you find yourself overwhelmed by how you will tackle these debts, keep reading.
Before we get into the different methods that can be used to pay off debt, I recommend making a list of all your debts. Write down the type of debt it is, the amount owed, the interest rate and the minimum amount that has to be paid monthly. 
It’s easy to ignore the problem, push it to the back of our minds and hope it will all work itself out. Writing it all down forces us to face reality and make plans to rectify the situation.

Snowball method 
The snowball method works by paying off the debt with the smallest outstanding balance first and moving down the list from the smallest to biggest debt.

This is a popular method because each eliminated debt frees up more money that can be redirected to help pay off the next one more quickly. This is where the snowball comparison comes from; the fact that just like a rolling snowball, the momentum gets bigger and can pick up more snow as it goes.

For example, if you have an outstanding balance of N$3 000 on a credit card, N$40 000 on a student loan, and N$1 500 on a clothing account, you’d start paying more towards the clothing account. Your debt snowball will grow in size as you pay off more debts. 
This method works for people who love to see progress fast, it’s motivating to see a debt fully paid off and to close the account. Psychologically speaking, people love to see their efforts rewarded, this is why this method is so popular because it includes a series of small successes at the beginning that lead to a big win at the end.

Avalanche method
The avalanche method works by paying off the debts in order from the highest interest rate debt to the lowest. The interest rate is a percentage charged on the amount borrowed. As a result, high-interest rate debts are more expensive and take longer to pay off than ones with lower rates. 

High interest amounts to several months and thousands of dollars added to your debt. The monthly interest fee also takes up a large portion of your minimum payments and the actual principal amount only goes down slightly. 
Using the avalanche method, have a look at your list of debts, assuming the credit card is charging 20% interest per year, student loan 14% and clothing account 23%. You will focus on paying off the clothing account and credit card first because they are the most expensive debts to have. 

With this method, you will end up paying less overall on your debts because you will be eliminating the high-interest debts first. It might take a while before you start to see anything happen, like an avalanche, but once you wipe out the first big one, you will gain momentum and your debts will fall away quickly.

Conclusion
It is very important to know that whichever method you choose to pay off your debts, you must continue to pay the minimum amount towards your other debts to avoid defaulting and ruining your credit record. Start by finding some money in your current budget and reallocate resources to tackle the debts.
The method one chooses comes down to personal preference, what matters is that you are taking decisive action and sticking to a plan. This will have you well on your way to a debt-free life.