How to Get Out of Debt

Morningstar’s Carole Hodorowicz shows you how using debt snowball or debt avalanche can help you become debt-free.

Carole Hodorowicz 11 February, 2021 | 1:55AM
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What if I told you there's a way to get a guaranteed return on investment?

You're likely thinking--what's the catch?

There's no catch. 

Morningstar’s Christine Benz says paying down debt offers a guaranteed return on investment equivalent to your interest rate.   

You may or may not know how much you owe in all or the interest rates. 

Don't get stressed. Let's work on your game plan with a list. 

First, write down how much you owe. 

Then, jot down who you owe and the time periods to pay the money back. 

Add the interest rates to your list. 

We’re going to show you two methods to help you win your battle against your bills. They're called "debt snowball" and "debt avalanche." Let's start with the "debt avalanche."  

Rank your debts in order with the highest interest rate account at the top. You will make minimum payments on all the debts. Then, you’ll throw extra cash on the balance with the highest interest rate. Pay that one off and move down the list to the next one. You’ll stay with this method until every debt is paid off.  

The "debt avalanche" may not appeal to you if you like to rack up early victories and boost confidence. Well, consider the "debt snowball."

List your debts from smallest to biggest. Make minimum payments on all of them. You put extra cash towards the debt with the smallest balance. Pay that one off. Then, you’ll add the extra money to the next debt to build a bigger snowball. Keep doing this until you’ve paid everything off.  

Morningstar's experts sum it up best: Choose the path to help you stay motivated and become debt free.

 

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About Author

Carole Hodorowicz  Carole.Hodorowicz is an Audience Engagement Associate at Morningstar.com

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