Month 8: Addressing Debt (If You Have It)

High-interest debt, like from a credit card, can be a major drain on a fixed-income budget. If you are carrying a balance, this month is about making a clear plan to tackle it. There are two popular methods. You don’t need to do anything drastic; just choose a strategy.

The first is the “avalanche” method, where you focus on paying off the debt with the highest interest rate first, while making minimum payments on everything else. This approach saves you the most money in interest over time, making it the most mathematically sound choice.

The second is the “snowball” method. With this strategy, you focus on paying off the smallest debt balance first, regardless of the interest rate. Once that smallest debt is gone, you “snowball” the payment you were making on it into the payment for the next-smallest debt. This method gives you quick psychological wins, which can provide powerful motivation to keep going. The best method is the one you will actually stick with. Choose one, adjust your budget to send a little extra to that single target debt, and feel good about taking a step in the right direction.