Which Debt to Pay Down First

Posted by Shelley Elmblad Dec 3, 2007

FiveCentNickel.com has a great analysis of three methods of paying off debt. FiveCentNickel took a hypothetical couple with two credit card debts and a car loan, each with a different balance and interest rate, then posed the question, "Which debt should you pay off first?"

From there, Nickel compares three methods of debt reduction: Dave Ramsey's debt snowball, paying down the debt with highest interest rate first, or concentrating payments on the debt with the lowest ratio of outstanding balance to minimum amount due.

Normally, I would pay off the debt with the highest interest rate first, but I like I like how Nickel analyzed the alternatives and I'll refer back to his blog post, Dave Ramsey is Bad at Math then next time I need to decide which debt to pay off first. The post is from a couple of years ago, but the methodology never goes out of style.

For more debt-reduction ideas be sure to read Paying Credit Card Debt Creatively, where Felicia Williams discusses how to pay off debts sooner without paying a higher monthly amount. Great idea, Felicia!