When considering paying off debt you may be thinking of what should you pay off first – highest interest debts or lowest balance. I have come up with answers but they may surprise you! You should pay off your highest interest rates first. Let me elaborate it for you, following are the best ways to pay off your down effectively.
Highest Interest Rate Debt
This is the most effective way to pay off the debt, as soon as you pay off the highest interest rate debt you become independent to pledge your all funds towards to the remaining debt.
Pay off the lowest balance
Paying off the lowest balance first is another good way to pay down the debts. Regardless of the interest, by paying off lowest balance debt you can work on the largest balance debt. By doing so, you will be greatly motivated to pay off other debts.
This is another best way to pay down all the debts, as it includes the merging of all debts into one line of credit, home equity loan or a 0% credit card transfer. Majority of people follow this method to get rid of all debts that they owe.
This method has one drawback that is it can suddenly pull out all the money from your credit card accounts in one shot for the debt repayment if you decide to use your credit cards until you pay off all your debts. This method is beneficial for having a lower interest rate that is generally exist on department store cards or credit cards. Debt consolidation method is ideal for those who are either with great list of debts or committed to get rid of debts, stay out of minimum payments, and due dates.
Many of the financial coaches feel propose different systems to be best in their opinions, such as Suze Orman supports paying off the highest interest loans first, while Dave Ramsey thinks paying off lowest balance first is the best idea.