Which of the following is not something that should be considered when creating a debt payment plan

Trying to pay off your debt can seem overwhelming, but there are strategies that can help. There are generally two different approaches to take to help pay down your debt, each method has its pros and cons. There is no right or wrong answer when it comes to which method is best because every person’s debt situation differs. Sometimes it might even be a combination of both methods. It is up to you to determine what motivates you and which process may be the best fit for your situation.

The "snowball method," simply put, means paying off the smallest of all your loans as quickly as possible. Once that debt is paid, you take the money you were putting toward that payment and roll it onto the next-smallest debt owed. Ideally, this process would continue until all accounts are paid off. As you roll the money used from the smallest balance to the next on your list, the amount “snowballs” and gets larger and larger and the rate of the debt that is reduced is accelerated.

In contrast, the "avalanche method" focuses on paying the loan with the highest interest rate loans first. Similar to the "snowball method," when the higher-interest debt is paid off, you put that money toward the account with the next highest interest rate and so on, until you are done. By focusing on the loans that are the most expensive to carry, in the long run, would effectively mean you should pay less over time with this method, as it addresses high interest first.

You may save some money with the "avalanche method," but if the principal is large, the time it may take to pay off debt with the highest interest can be discouraging and make it difficult to stick to the plan. Paying off small debts quickly can feel rewarding. If you prefer to see progress quickly and work your way up, then the "snowball method" may be a better fit for your debt management goals.

Putting the different methods to work

To apply the "snowball method" or the "avalanche method" to your financial situation, get organized by following these steps:

Perfecting your debt pay down strategy

• Build an emergency fund: Have a safety net in place before you begin a debt pay down method. While it’s good to want to become debt-free, having funds to rely on in case of situations like an unexpected medical bill or car repair should be a priority.
• Stay up-to-date on all of your current bills: Don’t start either the avalanche or the snowball method if you are late on payments, as this will only complicate your debt situation. Contact your lenders to discuss possible options to prevent late payments such as adjusting the payment due date.
• Track your spending: Be careful to not charge up additional debts while you are working to pay down your debt. Track your spending to ensure you stick to your budget. Take note on how your credit score changes. Paying down your debts may help improve your score over time.

As you work on your chosen debt pay down strategy, remember to stay focused on your end goal.

• With the "snowball method," you will enjoy those little wins and use them as motivation to keep going.
• If you are analytical and patient, the "avalanche method" may be the method for you. With the "avalanche method," it may take longer to roll over to your next account but if you have larger balances with higher interest rates and you stick to the plan, it should save you in the long run.

Either way, it will take time, but the important thing to remember is to commit to a goal and stay with it. By staying focused on your end goal, and keeping control over not adding unnecessary new debts, your existing debts will slowly melt away.

What are four important steps you could take to pay off your debt?

What are actions that should be considered when creating a plan to pay off your credit card?

How do I make a debt payment plan?

When developing a plan to pay off debt you must choose in which order you would like to pay off your debt which step is this on your journey to reducing debt?