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After Ashli Smith, 23, graduated from college last May, she wanted to pay off her credit card debts as soon as possible. She opted for the debt snowball method, or paying off the smallest debts first.
That meant starting with a $90 debt for headphones before moving on to a $1,500 credit card balance and then finally a $6,000 one. “You keep going with momentum,” she says.
Like Smith, many Americans are looking to pay off debt in the new year. According to NerdWallet’s latest credit card statistics, the average household with this type of debt owes about $6,849.
Using the debt snowball method can be a smart choice: Recent academic research shows that paying off smaller balances in full before moving on to the next balance can keep people motivated and on track.
The other primary strategy, the debt avalanche method, focuses on paying off the highest-interest-rate debts first. It’s a mathematically sound approach, but one that can be harder for people to stick with because they may have to wait longer to celebrate paying off balances in full.
Still, the right approach for you depends on your situation and personal preferences. Here are some tips on how to achieve your 2020 debt payoff goals.
1. Choose a payoff strategy based on your personal situation
There’s a reason the debt snowball method is popular.
“People tend to treat paying off individual debt accounts as subgoals towards an overall goal of getting out debt, which means paying off individual debts creates a more powerful, tangible sense of progress than paying the same amount of money towards a larger debt,” says David Gal, professor of marketing at the University of Illinois at Chicago, who has authored research on the topic.
But priorities and preferences differ widely. Sam Boyd, a certified financial planner and senior vice president of Capital Asset Management Group, a financial planning firm, says he likes to plug clients’ total debt numbers and interest rates into a calculator so he can quickly see how long it will take them to pay off their debt based on how much they are paying each month.
Some clients want to prioritize paying as little interest as possible, while others are more focused on the number of months it will take them to become debt-free. Talking through those numbers helps them pick between the debt snowball and debt avalanche approaches, he says. “It’s about personal preference,” he adds.
2. Hold yourself accountable
Sometimes, sharing your goals with friends or family members can make it easier to stay on track.
“If you have a goal and it’s in your head, it’s just an idea, but if someone else hears about it, you have more accountability,” Boyd says.
3. Find expenses to cut — but don’t go to extremes
In addition to living at home with her parents in Queens, New York, after graduation, Smith — who tweets under the “Bad Girl Finances” handle — also decided to cut her fast-food budget to just $40 a month.
“I made sure I ate at home and carried food to school or work or whenever I needed to,” she says.
But, Smith says, it’s OK to splurge on some things to avoid burnout. “I would still go to the movies or go out to eat, but just once a month. So I was still happy but also still paying off debt,” she says. “If you only pay off debt and buy nothing else, it can make you feel like you want to give up.”
4. Reward your progress
Smith recommends taking a moment to congratulate yourself on your progress and celebrate those smaller wins along the way to becoming debt-free.
“It’s not easy, and you should be proud of yourself,” she says.
She says each time she paid off a debt in full, she would take a close look at her remaining debt to stay on track, and then sometimes indulge in one of those monthly restaurant trips.
5. Build up your emergency fund
Once you pay off your debt, the next step should be making sure you don’t accumulate it again. Boyd says one of the best ways to do that is to build an emergency fund, which you can use instead of a credit card to cover unexpected expenses.
“If you’re paying $2,000 a month toward your debt, then when you pay it off you will have $2,000 a month in free cash flow that you didn’t have before — that is an incredible windfall that you can put toward another priority like an emergency fund,” Boyd says. “That is the light at the end of the tunnel.”
This article was written by NerdWallet and was originally published by Forbes.