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Brett and Kate McKay
you can save yourself money in the long run, and you might be able to pay
off your debt faster. Follow these steps to begin reducing your debt this way:
Grab a piece of paper and list all your debts in order from highest
interest rate to lowest interest rate. Usually your highest interest rates will
be on credit cards and car loans, and your lower interest rates will be on
student loans.
Focus on paying down the debt with the highest interest rate. Take the
debt nut that you just calculated out and direct as much of it as you can
towards paying down the debt with the highest interest rate.
Continue making minimum payments on the rest of your debt. You
can’t pay one creditor at the expense of others or else you’ll wind up in deep
doo doo.
Once the debt with the highest interest rate is paid off, start putting
the money you were paying on it towards the debt with the next highest
interest rate. When that debt is paid off, start going after the next highest
interest rate, and so on until it’s all paid off.
Option #2: Dave Ramsey’s Debt Snowball Plan
One debt repayment plan that’s popular with folks is Dave Ramsey’s
“Snowball Plan.” Here’s how it works:
1. List your debts in order from lowest balance to highest balance.
Don’t take into account the interest rate. We’re just focusing on the
balance of the debt.
2. Allocate as much of your monthly budget as you can to paying off the
debt with the lowest balance.
3. Once the debt with lowest balance is paid off, you add the dollars
that had been going to that debt to what you’ve been paying against
the next lowest debt. Each time you pay off a debt, the amount you
can apply to remaining debts is a little bigger. Thus, the name “Debt
Snowball Plan.”
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