There are two primary schools of thought for paying off debt. One optimizes for mathematics (saving money), and the other optimizes for psychology (saving motivation). Neither is "wrong," but usually only one is right for you.
The Snowball
Focus: EmotionWho it's for:
You need a "quick win" to stay motivated. If you don't see a balance hit $0 soon, you will likely quit the entire plan.
The Method:
List debts from smallest balance to largest. Pay the minimums on everything else, and throw every extra dollar at the smallest one. Ignore interest rates entirely.
The Avalanche
Focus: MathWho it's for:
You are highly disciplined and hate the idea of losing money. You can grind for months without seeing a "Paid in Full" letter.
The Method:
List debts from highest Interest Rate (APR) to lowest. Attack the debt that is costing you the most money per day. Ignore the balance size.
The Decision Quiz
Answer these three questions honestly to determine which path is safe for your current mindset.
1. Do you lose motivation easily?
Have you started budget plans before and quit after 3 weeks?
2. Does seeing interest charges make you angry?
Does the idea of paying $50/month in interest keep you awake at night?
3. Do you have many small debts?
Do you have 3+ accounts with balances under $500?