Debt Reduction & Debt Relief

Third month payments - the person would then take the $125 previously used to pay off
Credit Card A and apply it as additional payment to the Credit Card B balance, which
would make payments for the next three months as follows:
Credit Card B - $151 ($26/month minimum + $125 additional available)
Car Payment - $150/month minimum
Loan - $200/month minimum
Three more months (six total) - Credit Card B would be paid in full (the final payment
would be $146), and the remaining balances would be as follows:
Car Payment - $1750
Loan - $4000
Then the person would take the $151 previously used to pay off Credit Cards A & B and
apply it as additional payment to the car loan balance, which would make payments as
follows:
Car Payment - $301 ($150/month minimum + $151 additional available)
Loan - $200/month minimum
It would take six months to pay the car loan (the final payment being $240), whereupon
the person would then make payments of $501/month toward the loan (which would
have a $2800 balance) for six months (with the last payment at $234).
Thus in 17 months the person has repaid four loans, with two of them being paid in a
mere five months and three within one year.
Benefits
The primary benefit of the smallest-balance plan is the psychological benefit of seeing
results sooner, in that the debtor sees reductions in both the number of creditors owed
(and, thus, the number of bills received) and the amounts owed to each creditor.
Retirement contributions should start once your expected investment yield is higher
than the next highest debt interest rate (generally 8% for a balanced portfolio).
In a 2012 study by Northwestern’s Kellogg School of Management, researchers found
that “consumers who tackle small balances first are likelier to eliminate their overall
debt” than trying to pay off high interest rate balances first.
A 2016 study in Harvard Business Review came to a similar conclusion.
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