Choosing which debt to pay off first starts with two data points for each debt
, you organize your debts in order from smallest to largest. Each month, you make the minimum payment on every debt except for the smallest. For that payment, you should squeeze every possible dollar out of your budget until it is paid off.
If you plug the numbers into a spreadsheet, you'll find that paying off your highest-interest rate debt first will save you money and lead to a faster payoff than the debt snowball. To understand why, we have to look at the cost per dollar borrowed. to just pay off that $1,000 loan first, the numbers say that's the wrong approach, and it will cost you more in the long run.While I'm a finance guy who always focuses on the numbers, no two people are exactly alike. Countless people have found success using both strategies. The key is picking a debt payoff order that works well for your finances., but that just leads to bigger expenses and a slower payoff.
Turning around a tough personal finance situation isn't easy. Sometimes debt payoffs require difficult budgeting choices and extra hustle to boost your income. But when you reach the finish line and those monthly payments are gone for good, you won't regret it.
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