Knock Your Debt Out
What Debt Do I Pay Off First?
Owing money or falling behind on repayments can be stressful.?
One of the questions I receive most is, "What debt do I pay off first?"
Now, when you have multiple debts, it's essential first to identify everything about them.
For example, you need to know
Then, it's time to work out a realistic strategy to get them paid off.
There are two primary debt pay-off strategies.
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The avalanche method and the snowball method.?
Some people commence their debt reduction with the snowball method to get rid of their smaller pesky debts. Then they use the avalanche method for the remaining more significant financial obligations. I prefer the avalanche method because it ultimately saves you the most interest throughout your debt.
Let me explain it this way - if the thought of decreasing the number of debts you have quicker appeals to you, then the snowball method might be better for you. But, on the other hand, if you want to save the most on interest throughout your debt, I recommend the avalanche method.
If you have two debt accounts with the same interest rate, you can choose which one you want to pay off first. I recommend paying off the one with the larger balance.
There is no wrong answer to which method you choose as long as you have a firm strategy in place to get your debts under control.
A strategy can consist of putting together a cash flow forecast where you are committed to making regular payments and forego spending on non-essential items. While this can be difficult, remember it's only for a short-term period for a long-term gain.
Being focused and in control of your spend allocation is a bloody good feeling especially when you can see you're getting closer to being debt free!
I should note that not all debt is bad, especially if it's generating wealth creation.