There are several different schools of thought when it comes to which debt you should pay off first:
The debt snowball method of paying off debt is when you pay off the smallest loan/credit card balance first. Then the second, and so on while you continue making the minimum payments on the others. The debt snowball method is based on small victories. If you pay off one balance, you feel a sense of accomplishment and will be more likely to stick to your plan.
Tip: Make a list of all of your debt in order of balance: lowest to highest and begin focusing your efforts on the smallest balance. Once you have paid that debt off, take the amount you were paying toward that debt and put it toward the next smallest balance.
Mathematically, paying off balances with the highest interest rate first will save you the most money because you won’t pay as much in interest over the long run. However, you won’t start seeing credit cards and loans disappear for sometimes years.
It really is a personal choice because both methods are a great way to start reducing debt. If you are determined to save the most money, go with the highest interest first method; if you work best with motivation along the way, go with the debt snowball method.
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Categories: Credit, Debt Reduction