August 30, 2010

Get Out of Debt (Part 3 of 4): Pay the Lowest Balance First

A More Motivating Method to Eliminate Your Debt
Another alternative similar to the highest interest rate method involves starting with the lowest balance debt.

The fist debt will disappear more quickly and the process is a bit easier to initiate.  This can be a little more motivating for some.

You Pay More Interest

Even though it appears that the lowest balance method gets things done faster, you effectively pay more interest on other debt. In the end, this method is more costly and you will be debt-free later.

You can still use this method if you depend on the extra motivation it provides. Because the first debt will be eliminated faster with the lowest balance method, it will be even more enticing to tackle on the second debt on your list afterwards. 

Eliminating Small-Balance Debt Simplifies Your Situation

When you get rid of a small-balance debt, you have one less payment to worry about. This simplifies your overall financial situation.

It may be a good idea to use the lowest balance method if you have several small-balance debts on your hands.

In fact, the smaller the balance, the better it will be to use the lowest balance method. The ill effect, paying unnecessary interest, is then minimized.

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