What are some of the best ways to get out of debt? Personal finance experts have a variety of views on this matter. Two of the most popular debt-crushing tactics are:
- Pay down all of your debts in order of interest rate. Pay down the debt with the highest interest rate first, while making minimum payments on the rest of your obligations. Once your highest-interest debt is fully repaid, apply all of the money that you used to put towards that loan into your debt with the second-highest interest rate. This is called the "debt stacking" method.
- Pay down all of your debts in order of the total balance, regardless of interest rate. In other words, pay down the debt that will most quickly be completely decimated. Once your smallest debt is fully repaid, apply the money you used to put towards that loan into your debt with the second-smallest balance. This is called the "debt snowball" method.
Advocates of the stacking that could argue that this tactic will save the borrower the most money in interest payments over the long run.
Advocates of the snowball method, on the other hand, argue that this tactic produces the quickest psychological and emotional victories. That psychological victory, they say, is essential for maintaining the motivation to climb out of debt.
Learn more about these two methods in this article, Debt Snowball versus Debt Stacking.