One of the biggest debates in the personal finance space is about which order to use to pay off my debts. Opinions vary, experiences vary, and tempers flare when this subject is brought up. I think the debate is helpful in some ways but rather silly in other ways. I think it’s a lot easier to simply do the math on an individual situation and then consider all of the personal, behavioral factors too!
Today, I review the major approaches to paying off debt that I’m aware of and give some additional considerations that merit discussion.
Six Major Approaches to Paying off Debt:
- The Minimum Payment Method
- The “Little Extra Here and There’ Method
- The Debt Snowball
- The Debt Avalanche
- The Debt Tsunami
- The Risk Reduction Method
When paying off debt, I believe we need to consider three variables:
- Interest Rate
- Terms of the loan
Some additional points to consider about terms:
- Is the interest deductible or not?
- Is the debt secured or not?
- Is the interest rate fixed or not?
- Is the debt bankruptible or not?
- Can I refinance this debt?
- Is this debt consumer debt or business debt?
I hope you enjoy the show!
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