what to pay first

Forum|Forum|7 years ago
October 24, 2018
2 replies
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I am currently in debt with my car payment, credit card, student loans and medical bills. What would be the smartest to start paying off first once I start a new job?

Carl11_2

Assuming you are not behind on any of those payments, it's simple really. You list your debts smallest to largest. For you, there's 4 debts listed. So after listing them smallest to largest you make the minimum required payments on 2 thru 4 on the list, and then you throw every penny you possibly can and the debt listed first on your list. Get it paid off, then that moves your remaining debts up a notch.

Now you take the money you were paying on what was the smallest debt before, add it to the minimum payment on your "new" #1 debt and start paying it down. With one less debt to pay, you'll be paying of your "new" #1 debt faster than you may have originally thought you could

You keep doing this process until you are debt free. With the four debts you listed, and of course depending on the amounts, the average time it takes to pay those debts off in full is between 2-3 years. You may be able to do it in less than 2 years, depending on the amounts owed on each debt of course.

alntoy2

Whitney105,
you have to decide if you want to payoff Largest to Smallest balances first or pay the minimal amount of interest.
The suggestion you rec'd from Carl is called Debt Stacking and/or snowballing.
I prefer paying the least amount of interest possible.
Several online calculators will help you decide.

Carl11_2

A person that has made up their mind and is serious about getting debt free, will do what they want. But paying off the smallest debt first is always going to be faster than a higher debt. It allows you to see an end result sooner, thus providing encouragement to maintain the momentum. For most, attempting to pay off that $80K debt before the $25K debt results in discouragement of feeling they'll never see that light at the end of the tunnel. They usually give up and just quit trying. If one just ignores the interest rate and just "works it" from the smallest first, they can see actual tangible results that much sooner.

With an $80K debt at 10% interest and a 25K debt at 1% interest, there is no question one can pay off the smaller debt first. That instantly frees up the amount of that payment allowing the person to see actual, physical and tangible results much sooner. Thus, that payoff adds to the motivation to keep going with the next debt, now that you have that much more extra from the paid off debt to throw at it. So that's why the interest rate is a moot point a vast majority of the time.

But the bottom line is, those who "truly" desire to get out of debt, are going to do it their way. But before deciding what "their way" will be, the smart ones will ask questions to educate themselves and potential increasing the choices they can pick from for "their way". So putting interest rate over total amount of the debt isn't necessarily a bad thing, or the wrong way. For many, it's the long way. But so what if it works for you?