This method is somewhat similar to the snowball method, but makes more economical sense. In this method, you list all your debts in order of their interest rates, highest to lowest. Then, you pay as much toward the debt with the highest interest rate until it is paid off. Then you take all that money and start to pay down the balance with the second highest rate. You continue this until all your debts have been paid off.
This method will keep you from paying extra interest as you’re working to be debt free. However, the debt with the highest rate could have a large or even the largest balance, which might make it hard to pay off quickly. If you’re someone who likes to see results quickly to stay motivated, this might not be the best method.
For myself, I like to see results quickly because it keeps me motivated to continue, so this method may not be the best.
This method is simple to understand, but may not be the easiest to achieve since it requires taking out additional debt. Consolidation requires combining all your debt into one account and one payment. The major benefit of consolidation is that you are only making one payment a month, rather than multiple payments to different merchants. Another benefit is that your consolidated payment might be less than the total of all the payments you were making before. This can be beneficial especially if you’re struggling to make all your payments each month.
It’s important to note that there are different ways to consolidate your bills. In this post, I’m talking about consolidation loans you take out on your own, such as a home equity loan or balance transfer or line of credit. I am not talking about those done through a third party “debt-consolidation” company. These can be dangerous to your wallet and to your credit score.
There are other methods out there, each with their pros and cons. To figure out which one works for you, you’ll need to look at each and see which one fits you best.
What methods have worked for you? Why?