Consumer Alert: Two ways to pay off your debt and take control of your finances

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ROCHESTER, N.Y. This consumer alert is all about taking control. When you take control of your debt, you have control of your finances.

Thursday, I wrote about getting rid of budget busters like recurring expenses. Tackling debt is the next step. And the big bad boy of all debt bullies is credit card debt. It’s so easy to pay with plastic. It doesn’t feel like real spending until you get the bill. Right now the average credit card interest rate is 23.5 percent. And with rates that high, digging out can be daunting.

“And a lot of people find themselves in credit card debt, but you don’t have to stay there for long,” said Jarrett Felton, News10NBC personal finance expert and managing director of Invessent Wealth Management.

There are two primary ways of tackling debt. The avalanche method, which is paying off the card with the highest interest rate first, or the snowball method, paying off the credit card with the lowest balance first. Let’s start with snowball.

“So you categorize all your bills, and you look at the amount of balances you have from smallest to largest,” said Felton.

That’s the first step. Then you make minimum payments on all credit card debts except the smallest one. This is important. For the smallest debt, you pay as much as possible. Once you’ve cleared the smallest debt, keep that snowball rolling. Roll that payment over to the next credit card debt on your list. Then repeat that process until all debts are cleared.

“So snowball is really for that person who wants that win,” said Felton. “They need the wind under their sails so to speak.”

That explains the name, snowball. The joy of paying that small debt gives you the momentum to tackle the next one. The other method is the avalanche method where you list debts by interest rate from highest to lowest.

“So now you look at X credit card where the interest rate is 25 percent, then credit card number two is 22 percent; the next one is 20 percent,” Felton explained.

Then you pay the minimum on all debts except the one with the highest interest rate. Pay extra on that one. When you pay that off, pay extra on the card with the next highest interest rate. Again, pay the minimum on everything else. Keep repeating this process until all credit card debt is paid.

“Two different schools of thought. Two different approaches,” said Felton. “At the end of the day, both will help you eliminate debt. But the worst plan is having no plan.”

Felton says don’t be afraid to switch it up. There are some circumstances in which switching to a different method is best. I had cancer twice in college and racked up a lot of medical debt, but I also had credit card debt. So I used the avalanche method, paying off the credit card first because my medical debt wasn’t charging me an interest rate.

But when I started paying off the medical debt, I tackled the bill with the smallest balance first, because, with that mountain of bills, I needed the satisfaction of paying the smaller ones off first. It depends on your debt and your personal circumstances.