Snowball Plan

• The snowball plan requires you to pay the minimum payments on most of your debts while paying a larger amount on one debt. This allows you to pay off one debt at a time and gradually get out of debt altogether. Financial guru Dave Ramsey recommends paying the smallest debt off first so that you can experience success and build momentum to tackle bigger debts. You may pay extra interest if your larger debts are high-interest loans, as interest accumulates on them while you are paying off smaller debts.
  
  

Avalanche Plan

• Like the snowball plan, the avalanche plan requires you to tackle one debt at a time. However, using this plan you pay off the highest-interest loans first. This plan allows you to save money by paying the least amount of interest; however, it may be more difficult to stay motivated if your highest interest loans are also your biggest-balance loans, meaning that it takes months or years before you pay off your first debt.
  
  

Emergency Savings Requirement

• Before embarking on either the snowball or avalanche plan, put at least $1,000 into an emergency savings account. Paying off your debt using either of these plans requires you to pay more than the minimum on one of your debts each month, leaving less funds available for everyday needs. Thus, you should have extra funds available to cover your day-to-day needs until you free some income by paying off one or more debts.
  
  

Cutting Expenses

• MSN Money suggests finding extra money to pay back debts by cutting back on or cutting out unnecessary expenses. For example, if you buy coffee every morning on your way to work, cut back to two days per week or make coffee at home every morning. Put the money you save by cutting expenses toward your debt. If you need extra motivation, you can put a percentage of the saved money into your emergency savings while putting the rest of it toward your debt.