So you’re going to start paying down your debt- in order to start, you need to work up a plan on HOW. These next few tips will give you a good outline on where to begin.
Start off with low or high?
There are two methods for paying down your debt. The first is called the Debt Snowball, it involves paying off your lowest balances first and working your way up to the larger ones. The other method is called the Debt Avalanche, which prioritizes paying off your highest interest rate first and working your way down to the lowest.
The Debt Snowball makes for early accomplishments while the Debt Avalanche will save you the most money over time.
First, be sure that you’ve budgeted enough to cover the minimum monthly payment for every debt. Now, arrange the debts by balance, from smallest to largest. Disregard the interest rate on each.Every month, put the extra money you budgeted for getting rid of debt toward your smallest debt — even if you are paying more interest on a different one.
Every month, put the extra money you budgeted for getting rid of debt toward your smallest debt — even if you are paying more interest on a different one. Once the smallest debt is repaid, take the entire amount you were paying toward it (monthly minimum plus your extra money) and target the next-smallest debt. Keep knocking off debts and then diverting all the freed-up money toward the next debt in line..
This can make numbers people crazy, because it usually saves time and money to pay highest-interest debts first. The debt avalanche method is a better fit for them. But if you need to front-load your payoff plan with early victories in order to stick with it, snowball is for you.
Mathematically, the debt avalanche is known as a more efficient, cost-effective and often faster way to get out of debt than other approaches to debt reduction.
With the debt avalanche method, you pay as much as possible toward your highest-interest debt, while making minimum payments on the rest, until all your debt is paid off. If your high-interest debt is weighing you down, this could be a good solution to becoming debt-free.