Which debt to pay off first? Some experts tell you to pick the debt with the largest interest rate. That seems to make sense because high interest equals more money out of your pocket. But today I'll share how you may be better off trying an alternative approach.
In my book, How to Get Out of Debt - A Biblical Approach to Living Debt-Free, I put you in the ring. The boxing ring that is. We knock out each debt starting small and then finish strong in the heavyweight class.
By starting as a featherweight (paying the smallest debt first) we are able to completely remove a bill from the budget. There is less to manage and it feels good to completely pay off a debt in a short amount of time.
Rational vs Emotional Approach
My Knock Out Method for powering down your debt is purely emotional. It's not the black and white approach. Clearly removing the most costly debt makes sense but it usually will be the hardest debt to pay off (the heavyweight). Learning how to get out of debt takes discipline. You will stumble. So, my approach is to start small. Baby steps. Start with the featherweight match.
Which Debt To Pay Off First
1. Make a list of all of your consumer credit bills (credit cards, line of credit, store credit cards, etc). List them by amount owed and interest rate
2. Highlight the lowest amount. That is the debt you will pay off first.
Tip: After you have won the featherweight round (smallest debt) then add that payment to the lowest remaining bill.
Question: How do or did you stay motivated when you paid off your last bill? You can leave a comment by clicking here.