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3 ways to manage debt: Snowball, avalanche and bankruptcy

It is not uncommon to find yourself not meeting your financial goals. Whether you are looking at individual or business finances, it is a good idea to explore debt relief options to devise a strategy to pay off what is owed when these goals get off track. This can set you up to move toward a stronger financial future. Three options for paying off debt include snowballing, avalanching and bankruptcy.

The snowball process pays off the smallest debt first 

The snowball approach is often useful when credit card debt or personal loans have become unmanageable. With this process, the focus is on one debt at a time, typically the smallest debt first. All available funds are used to pay down the smallest debt, and once it is paid in full, the focus shifts to the next smallest debt.

Avalanching is the opposite of snowballing 

The avalanche approach targets the highest balances first. It is important to keep in mind, however, that while all payments are going toward the largest debt balance, all the other debt still exists and may incur increased interest rates or late fees in the meantime.

In short, with the avalanche or snowball process, although you are chipping away at debt things might get a lot worse before they get better.

Chapter 7 and Chapter 13 bankruptcy  

Bankruptcy is also often a viable option for debt alleviation. There are eligibility requirements associated with Chapter 7 and Chapter 13, and it is possible to qualify for one but not the other. Chapter 7 uses net proceeds acquired through asset liquidation to pay back creditors while Chapter 13 uses disposable income to make payments on debt over a period of time. Anyone with questions about either type of bankruptcy or other forms of debt relief may request a meeting with an experienced bankruptcy law attorney to discuss his or her case.

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