Maybe it’s student loans. Maybe it’s credit cards. Maybe it’s car payments or personal loans. Most likely, it’s some combination of all those, plus a few I didn’t mention.

If it isn’t obvious by now, I’m talking about debt. The average American has more than $38,000 in various forms of debt. That number is only increasing. Nobody likes debt, but it’s overwhelming to try and claw out. Today, I’ll go over the first steps to becoming debt-free.

Debt Is Dragging You Down

Your debt is destroying you. By having to pay significant portions of your income for things you already bought, you’re sliding backward. Debt keeps you from living a life that excites you. As long as you are in debt, it will be harder to put money away and save for the things you really want out of life.

Aside from the mathematical realities of debt, debt is a huge emotional weight. The constant stress of knowing you owe other people for your stuff is awful. Even if you aren’t actively thinking about it, it will always be there in the back of your mind. Churning. Stressing. Worrying.

The stress of debt puts you in a bad place. Stress keeps you from thinking clearly. You make worse decisions because you are in a constant state of fight-or-flight. That’s great for getting out of imminent danger, but a terrible way to walk around every single day. So what can you do about it?

Emotions Versus Mathematics

A lot of the debate around the best way to pay off debt comes down to 2 core differences: emotions versus math. People who lean towards emotions will tell you to pay off your debt one way. People who lean towards “logic” will recommend a different approach. These 2 camps are at odds with one another. Most personal finance professionals take a hard stance on one side or the other.

The emotional camp ends up costing people more in interest. The logic camp ignores the way your brain works. These 2 approaches go by 2 pretty common names: The Debt Snowball and the Debt Avalanche.

I’ll break those down in a second, but I want to hit on one key point first. People are emotional. Even people who claim to be logical make their decisions based on their emotions. They just don’t realize it. 

By accepting that point, we can develop a debt payoff strategy that works with psychology to keep us going while still saving on interest.

Debt Snowball - Emotions

The Debt Snowball, touted by followers of Dave Ramsey, is the “emotional” method of paying off debt. It goes like this: organize your debts from smallest balance to highest, then pay them off in that order. Ignore the interest rates.

Because humans need to achieve and set new goals, this method allows you to get small wins under your belt early. Paying off a debt account feels good. This gives you the momentum to keep going on your journey to being debt-free.

But, ignoring the interest rates can really cost you. As you pay off smaller balance debts, your other debts are still accruing interest. If one of those larger debts also has a higher interest rate, you are headed down the hill right next to your snowball.

Debt Avalanche - Logic

The Debt Avalanche is touted as the alternative to the Debt Snowball. Screw the emotions, we’re using math. You can’t argue with math. The Debt Avalanche goes like this: organize your debts from highest interest rate to lowest. Pay them off in that order. Ignore the balances.

This avoids the biggest pitfall of the Snowball. By focusing on the interest rates, you ensure that you aren’t headed backward as you pay off your accounts. This also avoids how your brain works. Again, you must achieve goals. You need those goals to keep yourself motivated. 

Video games don’t start you with the final boss, they build you to that. It would be very easy to get frustrated and give up on your debts because you don’t feel like you’re making progress. 

The Debt Ski Lift

My method for debt payoff is the “centrist” approach. It seeks to maximize your emotional return like the Debt Snowball, and limit your interest like the Debt Avalanche. I’m calling it the Debt Ski Lift because we’re headed up the hill while everyone else is falling down it.

How it works.

Don’t screw your emotions. But don’t ignore the math either. The Debt Ski Lift is a little more complex in practice but as easy to summarize: Group your debts into interest rate "buckets." Organize each bucket from lowest to highest balance. Pay off the buckets in order, starting with the lowest balance in each bucket. 

With the Debt Ski Lift, we are playing off our emotions while still acknowledging the math. We can stay motivated. We can also cut the extra interest we have to pay.

Why it’s better.

Ignoring your emotions is a surefire way to lose motivation. You'll slide further from your dream. If you want to achieve any goal, you have to motivate yourself. To be motivated, you have to engage your emotions. Otherwise, you’ll get caught under the avalanche.

Ignoring the math of money can make you feel like you’re headed downhill with your snowball. As you pay off your lowest balances, your larger balances with more interest keep piling up. You can’t get ahead that way. Money is math as well as emotion.

There is a better way. Get off of the mountain and into the Ski Lift. You’ll watch your debts disappear from the safety of your buckets. You'll engage your emotions and apply logic. Life often requires decisions, but in this case, you don’t have to choose. 

First Steps

The first step towards paying off debt is simple: catalog your debt. Get a copy of your most recent statement from every single creditor. Make sure you know the balance as well as the interest rate.

Once you know what your debts are, you can begin the slow process of getting them paid off. My coaching clients get access to all my fancy spreadsheets and charts and graphs. This makes the process so much faster. I'm also there to support them. They can know exactly when and how they will be debt-free. Be organized, and stay on top of it. Get support from family and friends. Email me. 

Conclusion

Everyone wants to pay off debt. There is a lot of advice out there. Most of it ignores either how your brain actually works, or the fact that money is math. Acknowledging both of those facts with the Debt Ski Lift allows you to crush your debt. Get going and begin living a life that excites you.