What is the Best Strategy to Pay Off Our Debt. - Allen
Posted April 3, 2013
WRAL Reader Question
My wife and I have a few credit cards some with balances around the 150-300 neighborhood and then a couple with balances between 400-700 they all have the same interest rates. We make good money but are confused as to how we start to pay them down.
My question is do we start with the lower balances and clear them out so we can pay down the larger balances. Or do we start with the larger ones and continue to make the minimum payment on each.
There are two ways to pay off the debt. Each has it's merits.
One way is to pay off the smallest balances first. This approach gives you the fastest emotional feedback and you quickly see debts disappearing.
The second way is to focus on the highest interest rate first. This will allow you to payoff the debt and pay the least amount of interest. This strategy can be tougher for people that are not good at developing a long term plan and sticking to it until the end.
One approach I like is the free service offered by ReadyForZero.com. This free service will prioritize your debts to pay them off in the shortest period of time without paying extra money. The service helps to apply structure to the math to keep you on track and motivated.
ReadyForZero.com is a neat solution because it gives you online modeling and help about what adjusting your repayment strategy will do and it's worth looking into.
Don't forget though, when you are done paying off your cards, don't close them. If you do you terminate your ties with the length of time you've had the cards and the longer you have a credit card the more that can help boost up your credit score.
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