As of 2018 the average US household that has any type of debt had on average $135,768 in debt. The average household that has revolving credit card debt has $6,929 in revolving credit credit card debt, and those with student loans owe an average of $47,671 in student loan debt.

The age group that has the most personal debt is older millennials, age 25 to 34 in 2018. They had an average of $42,000 in personal debt in 2018. However, the group with the highest amount of overall debt were 45-54 year olds with $134,600 in debt, followed closely behind by Gen Xers (35-44 years old) with $133,100 in debt.

In addition, 2 in 10 Americans spend 50% to 100% of their monthly income on debt repayment, and only 23% of Americans said they had no debt.

Chances are you have debt, and a LOT of it, or at least more that you can comfortably afford to pay off every month, but there is hope if you want to get out of debt.

Over the past year I have gotten control of my debt and started paying it down aggressively. If I keep going at my current rate I should be debt free, with the exception of my mortgage, next year. Had I not started paying it off at my current rate it would have taken me 7 years to pay it off, assuming I didn’t spend any more.

How am I doing it? I created a budget, got control of my spending, and I sink as much as possible every month into paying off my debt using the debt snowball method.

Avalanche vs Snowball

There are two schools of thought on debt repayment;

The debt avalanche, or
The debt snowball method.

In the debt avalanche method you pay off the most expensive, or highest interest rate debt first, then work down toward the cheapest, or lowest interest rate debt.

In the debt snowball method you pay off the smallest debt first, then use the money that was paid toward the smallest debt toward the next smallest. Rinse and repeat until you are paying off the largest debt with the total you were paying for all of the previous debts.

Both methods have have good and bad aspects, so there is no right way for everyone, but I like the debt snowball because it helps with motivation. Since you are paying off the smallest debt first it takes relatively little time to pay it off and you get a quick win. I feel like the sense of accomplishment that comes from paying off a debt gives me motivation to keep working on it, and the eventual final pay off doesn’t seem that far away.

Using the avalanche method you don’t necessarily get the quick win unless your highest interest debt is the also the smallest amount. As a result it can feel like it is taking a long time to make any progress, which is saps motivation. However, the avalanche method typically has a faster total payoff time than the snowball method and less is paid in interest than the snowball method (as long as you continue to sink the maximum amount of money available into the debt payoff).

I actually think a combined approach is best whenever possible. I like to use the snowball method as my overall approach because it’s quick wins increases my motivation, but combine it with the avalanche approach for debts of similar size to decrease my total pay off time and interest paid. If, for example, you have three credit card debts, one is $1000 and 20% interest, one is $2000 and 20% interest, and one is $2100 and 25% interest, I would pay off the $1000 bill first for the quick win, then pay off the $2100 bill because the $2000 bill and $2100 bill are similar size but the $2100 bill has a MUCH higher interest rate.

The bottom line is that you should use the method that is actually going to work for you, keep you motivated, and eliminate your debt.

Whichever method you use, be sure to track your progress. My bank has an awesome goal tracker that shows me how much progress I have made, how much more I have to go, and if I am on track to meet my goal in the time I specified. It really keeps me motivated to continue paying off my debt as quickly as possible. I get a nice happy feeling every time I check my progress and see how far I have come. Mint.com has a very similar goal tracker that is free to use, which is ideal if your bank doesn’t offer a similar option.

Make a Budget

If you want to start paying off your debt but you don’t know where the money would come from then you need a budget. This month’s episode of Hang Your Hat delves into several budgeting philosophies to help you find the one that works the best for you. I also discuss money saving tips including some radical options you may not have considered yet. You can listen to Episode 32, Household Budgets here, or wherever you get your podcasts (just search for Hang Your Hat).

I would love to hear your stories about your own debt pay off. Please share them in the comments.