What Debt Would You Pay Next?
Posted By Mr. Imperfect on February 5, 2009
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As noted in our last post, we have paid off our first bill this year. It was a personal loan that still had over a year left. Now, the question we face is which bill do we pay next? There are several schools of thought here, we are going to list them and then ask your opinion.
Pay off the debt with the lowest balance.
If we do this, we could have our next bill paid off in around six months. The idea about this way (which is part of the Dave Ramsey plan) is that it gives you a psychological boost each time you pay a debt off. It also helps you stay disciplined and on the right track.
Pay off the debt with the highest interest rate.
This way allows you to save more over the long run. The difference in interest expense can be considerable over time. By getting rid of this debt early you can save all the money that would have been spent on the interest.
Pay off the debt with the lowest interest rate.
If you are following some sort of a payment schedule (sometimes called a “snowball” by Dave Ramsey readers) you may place all of your extra money into paying off the bill with the lowest interest rate. Here the concept is that since the payment has less interest, more of your money is going toward the principal. Since a lot of us have our lowest interest rate in our mortgage, I think the sheer amount of time required to complete this would ne demoralizing. This is definitely not the way we are going.
Well, we would like your thoughts on the matter. On our site (for those of you getting this via a feed reader or email) we have a poll going for the next two weeks. Come on over, tell us what you think, and we will display the final tally on Feb 21, 2009.
Thanks for reading and have a great day!
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very helpful and informative post.. thanks for sharing..