Option 1: Pay off the highest-interest debt first Key advantages: Allows you to save money and redirect funds to other financial goals. Key drawbacks: If your largest debt also has the highest interest rate, it could take a while to pay it down.
In general, there are three debt repayment strategies that can help people pay down or pay off debt more efficiently. Pay the smallest debt as fast as possible. Pay minimums on all other debt. Then pay that extra toward the next largest debt.
Start chipping away at your highest-interest debt first.
Use any extra money you can find to pay down your highest-interest debt. Every dollar counts. Once you pay off that credit card or other high-interest debt, you'll have more money at the end of the month to put toward the debt with the next-highest interest rate.
If you've got unpaid balances on several credit cards, you should first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards.
Paying off your highest-interest loan first could help you save more than focusing on the loan with the smallest balance. After you pay off the loan with the highest interest rate, take that monthly payment, and apply it to the loan with the next-highest interest rate.
The snowball method works because paying off a debt in full incentivizes you to keep working toward your goal. As you pay off your smaller debts, you'll have more money to put toward your larger debts.
Since it has you pay off debts based on their interest rates—targeting the most expensive ones first—it means you end up paying less in interest. Some people find it much easier to stay motivated when they pay off smaller debts first, regardless of their interest rates.
Consider the snowball method of paying off debt.
This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off.
The simplest way to make this calculation is to divide $10,000 by 12. This would mean you need to pay $833 per month to have contributed your goal amount to your debt pay-off plan.
Some experts say any loan above student loan or mortgage interest rates is high-interest debt, a range of about 2% to 6%. Financial planners often recommend paying off "high-interest debt" before saving or focusing on other financial priorities.
Nearly 80% of all US currency in circulation is denominated in $100 bills.
Which Dollar Bill Serial Numbers Are Worth Money? Generally, the more unique the serial number on your dollar bill, the more likely it is to be worth more than face value. Some examples of uniqueness include repeating numbers, numbers with a star after them and sequences (such as 12345678).
“That's because the best balance transfer and personal loan terms are reserved for people with strong credit scores. $20,000 is a lot of credit card debt and it sounds like you're having trouble making progress,” says Rossman.
Without debt, you can focus on building more savings, investing those extra funds and just simply having more peace of mind about your finances. Paying off all your debt, however, doesn't always make sense.
Paying off all your credit cards or installment loans quickly could raise your credit score because this behavior shows lenders that you can handle different types of credit. As long as you are paying these types of debts as quickly as possible, you could see your credit score rise.
Our recommendation is to prioritize paying down significant debt while making small contributions to your savings. Once you've paid off your debt, you can then more aggressively build your savings by contributing the full amount you were previously paying each month toward debt.
Debt-to-income ratio targets
Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high.
Since your credit card likely charges higher interest rates than your car loan, it's a good idea to pay off your credit card debt first.
One of the most common percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
What Is the 30-Day Rule? Instead of allowing yourself to make that impulse purchase, wait for 30 days before you buy — that's the 30-day rule. Following this rule means you defer all non-essential purchases for 30 days, which gives you ample time to think about whether you really need to make the purchase.