The Debt Tornado

Channel your Hatred of Debt to Destroy it

Anyone who has ever lived with a significant debt load can agree on one thing; they hate debt and the restrictions it places on their lives. We all agree that living in debt is awful. The real question is how do we get out of debt?

Whenever I discuss how to get out of debt, I generally refer to two debt repayment strategies.

1. The Snowball Method
2. The Avalanche Method

The Snowball method

The “snowball method” to debt repayment was made popular by Dave Ramsey. It is a four-step process.

• Step 1: List your debts from smallest to largest.
• Step 2: Make minimum payments on all your debts except the smallest
• Step 3: Pay as much as possible on your smallest debt.
• Step 4: Repeat until each debt is paid in full.

Why the snowball method works

The snowball method is hugely popular because it taps into a simple truth about getting out of debt and managing money. It’s more about habits and emotion than technical knowledge.

The whole idea behind the snowball method is that by focusing on your smallest balance and getting that paid off quickly you gain confidence. With each loan you clear, you begin to believe that you can accomplish your goal of getting out of debt and that keeps you focused on your mission of getting out of debt.

I like the snowball method because as I’ve written in the past if you are trying to accomplish a task that seems impossible the only way to guarantee success is to take massive action and see early results. This creates a virtuous cycle that can help you accomplish your goal.

The avalanche method

If the snowball method is about psychology, the avalanche method is all about cold hard numbers.

Rather than paying off the loans with the smallest balance first, you pay off the loans with the highest interest rate first. It is also a four-step process.

• Step 1: List all your debts from the lowest interest rate to the highest interest rate.
• Step 2: Make minimum payments on all your debts except the debt with the highest interest rate.
• Step 3: Pay as much as possible on your debt with the highest interest rate.
• Step 4: Repeat until each debt is paid in full.

Why the avalanche method works

If you are the kind of person where motivation isn’t an issue and your main priority is to get out of debt as quickly and efficiently as possible, the avalanche method is for you.

When I say the avalanche method is more “efficient” I’m referring to the fact that by focusing on the debt with the highest rate of interest first, you will pay less total interest by the time you have cleared all your debts.

If you have the discipline to “stick with it”, knowing it might be a long time before you get your first “win”, this might be the route for you.

Typically, the snowball and avalanche methods are the only debt repayment strategies I talk about. However, I was recently reading an interview with a man named Steve Donovan who has come up with a unique debt repayment strategy.

Introducing the debt tornado method

Like the snowball method, the debt tornado method taps into human psychology to keep you motivated. Rather than using “early wins” as positive motivation, the debt tornado focuses on your anger of living in debt as powerful motivation to pay it off.

According to Steve’s debt tornado method rather than focusing on the loan with the smallest balance or highest interest rate you should focus on paying off the loan that you hate the most as your first priority.

• Step 1: List all your debts from the debt you hate the most to the least.
• Step 2: Make minimum payments on all your debts except the debt you hate most.
• Step 3: Pay as much as possible on your debt that you hate the most until it is paid off.
• Step 4: Repeat until each debt is paid in full.

Why the debt tornado works

When I finished my master’s degree, I had three different student loans from three different banks. I did not like living with any debt, but there was one loan I hated more than the rest. It was a student line of credit I had since I was starting University at 18 years old. I had been making monthly payments on that loan, my entire adult life. During the time I had that loan I experienced many turbulent financial times and as a result, missed a few payments which put my credit score into the toilet.

I hated that loan more than anything, it brought me nothing but misery. Every time I would get my loan statement in the mail, my stomach would tie up in knots. Once I started making money after I graduated from graduate school, I attacked that loan with everything I had because I could not wait to be rid of it. Paying that loan off was one of the most liberating feelings of my life.

That is why the tornado method works.

“Early wins” are well and good but it’s impossible to match the feeling of cutting yourself loose from that debt that has acted financial anchor tied around your feet.

Anyone who has lived in debt long enough can relate to what I am talking about. There is that one credit card or that one loan that has caused you more pain than all the rest. Paying off that debt and closing the account once and for all is one of the most important days on your journey to financial independence.

Do you have or did you ever have one credit card or one loan that you hated more than the rest of your debt? Let me know in the comments and let me know how you paid it off or how you plan on paying it off in the future.

Don’t forget, you can now enroll in a free personal finance class created by Making of a Millionaire.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions