Debt Pay-Off Methods

Here are the two most popular debt pay-off methods:

Debt Snowball

• How - You pay the minimum payment on all your cards/loans, except the loan with the smallest balance on card A. Once that is paid off, you apply whatever you were paying on card A to the next card with the smallest balance, let's call it card B. This payment will be in addition to the minimum that you are already paying on card B. The idea is that you get a psychological high from paying off one of your cards and your payments on the main card at the time increase as you continue to pay off card after card.
• Pros - You get the psychological benefit of seeing some debts disappear.
• Cons - You must have a lot of cards with varying unpaid balances. This is usually not the best way to save on the interest costs. 

Highest Interest First

• How - Pay as much as you can on the card/loan that has the highest interest. Once that loan is paid off, pay the balance with the next highest interest off and so on.
• Pros - Mathematically, you save the most in interest by attacking the highest interest account first.
• Cons - You must be dedicated to paying off your debt even if you do not see great results consistently.

I want to get out of debt as quickly as possible, so I like the Highest Interest First method. However, my two student loans are both at 6.25%, therefore, I am paying more on the private student loan as it has a variable rate and could go up. Also, this student loan was co-signed by a friend, therefore, I feel obligated to pay this one off first. Therefore, even if the private student loan had a lower rate, I feel that I would pay it off first as there are other factors to consider other than your psychological motivation and largest savings in interest.