The snowball vs the avalanche: The doctor’s guide to debt elimination

By Physician Sense, for MDLinx
Published April 22, 2019

Key Takeaways

Graduating doctors are walking out of med school with a staggering average of almost $200,000 in student loan debt. If they manage to make it into residency, those same doctors are netting about $60,000 annually. That means they’re likely to amass more debt making ends meet through the duration of their residency. For most young doctors, debt elimination quickly becomes a priority.

If you don’t qualify for student loan forgiveness, you’re going to have to service that debt along with any others you’ve amassed. This could include auto loans, healthcare costs, or credit cards, some of which can have APRs that are north of 30 percent. But what’s the best way to go about paying it all off? The answer may depend on your personality.

The snowball method for debt elimination

If you’re the kind of person who needs small, frequent wins to create a habit, the snowball method might be your best bet for paying off your debts. To begin, order your debts from smallest to largest. Each month, you make the minimum payment for all but the smallest of these debts. For the smallest debt, you make the minimum payment, plus whatever extra you can put toward servicing the balance.

Once you’ve eliminated the smallest debt, you reward yourself (in a financially responsible way — like a cookie or a beer) and begin servicing the next-largest debt. Your payment is the minimum, plus whatever you were contributing toward paying off your smallest debt. The process repeats with you making increasingly larger payments by eliminating the previous debt. 

While this approach may help you stay motivated and committed to your debt-reduction strategy, it does have a disadvantage: it ignores interest rates. This can be costly. The next method might save you money.

The avalanche method for debt elimination

For those of you who are more patient, the avalanche method is your weapon of choice for destroying debt. It works similarly to the snowball method. The key differentiator is that you order your debts from highest to lowest interest rate, instead of from largest to smallest debt total.

Continue reading on Physician Sense >

Share with emailShare to FacebookShare to LinkedInShare to Twitter