There are two major schools of thought for paying off debt:
This is the more common way of paying off debt. A major proponent of this plan is Suze Orman.
You pay off debt with the highest interest rate to lowest interest rate.
You will save money because you pay as little interest as possible.
Mathematically, this is the ‘correct approach.’ However, the snowball approach has its merits as well.
This term is often used by the aforementioned financial guru, Dave Ramsey.
Using this method, you pay off the smallest debt first. Instead of focusing on interest rates, the argument for the snowball approach is more emotion-based.
The idea is that as you eliminate small debts, you will become motivated to keep ‘snowballing’ your way out of debt.
The avalanche approach to paying off debt is correct, mathematically speaking.
But money management is often dominated by emotion. ‘Left brains’ prefer the avalanche approach, ‘right brains’ prefer the snowball approach.
Determine if you’re ‘left brained’ or ‘right brained’ by reading this article.
Read this article for additional information about each approach.
In many cases, you can negotiate your interest rates.
LearnVest is a financial planning company that offers ample resources for tackling debt.
In 2011, their website was included on TIME’s list of the Top 50 Best Websites.
The site acquired over $68 million to advance their online services.
They offer a free resource to help you lower your interest rates.
It walks you through exactly what needs done in order to reduce your interest rates.