Which Debt Should You Pay Off First?

So, you've figured out how much you owe. That's a great start (and getting started is half the battle!).

The next step is to put together a plan to start paying off your debt.

Two Schools of Thought for Debt Repayment:

There are two schools of thought for how to pay back your debt.  Both have their pros and cons, and it's really up to you and what you think will work best for you to decide which way to pay down your debt.

Start with the Smallest Debt First:

Dave Ramsey argues that you should start paying off your smallest debt first.  Then, you'll have the psychological victory quickly of paying off some debt, and you'll get excited to continue and pay off the rest (the debt snowball).

Start with the Debt with the Highest Interest Rate:

It would make sense that you want to pay off the debt with the highest interest rate first, since it's costing you the most money to carry.  However, Dave Ramsey would argue that if your largest debt has the highest interest rate, it may take awhile before you notice your overall debt decreasing, and you will quit trying because you haven't had any visible victories.

Decide which method you think will work for you best and help you continue on your journey to pay off debt.

How it Works:

Calculate your total monthly minimum payments and continue to make at least the minimum payments on all debt.  Any extra money, you can throw towards either the smallest debt or your highest interest debt.  As soon as that debt is paid off, continue to make the same payments, but focus it on the next smallest debt (or highest interest debt) until your debt is completely paid off.

Whichever method you choose, you'll want to keep track of your overall debt and celebrate payoff milestones.  You could draw a thermometer and fill it in as you pay off more of your debts.  Or, you could list out all your debts and cross them off as they get paid to show progress.

You want to make sure you stay excited to continue to repay debt.  It's a worthwhile process, but it can take a lot of sacrifice and effort to get there!

What about you?  Do you think paying the smallest debt first or the highest interest debt would work for you?