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.

High Interest Savings Accounts

Where should you keep your emergency fund?

You should always look for a high interest savings account to keep your savings. Now, the highest interest banks out there with no restrictions are AmEx with 1.3% interest rate and SFGI Direct with 1.4% interest rate. This is a great way to earn at least some money on your funds. Also, since the banks are online, it will take you time to draw on the balance and will, hopefully, prevent you from spending the money you should be saving.


AMEX Bank
SFGI Direct

Some savings accounts that have restrictions such as the requirement to use the debit card at least 10 times per month and have a direct deposit into the account pay as much as 4.5% interest rate.


To check for current highest rates, go to:

Deposit Accounts
High interest accounts with requirements

My Bank Tracker
No fine print savings accounts

Emergency Fund

Everyone needs to have an emergency fund. The amount of the fund varies. Most experts will agree that you need at least 3 months of your expenses. Suze Orman, on the other hand, believes that everyone needs to have 8 months of pay in their emergency fund. What is comfortable for you, depends on how stable your job is, what your expenses are, how much debt you have, and what type of personality you have.

What is important is that you set an amount for yourself and try to achieve that goal. You should save at least 10% of your salary, however, 25% would be something to strive for. You could start with 10% and every paycheck, month, or year up it by 1%. You would not notice the 1% decrease in the take-home pay, however, your savings, over time, would.

Personally, 6 months of expenses is enough while I pay down a private student loan and put some away in a Roth IRA. I do not have dependents and my job is pretty stable, however, I sleep better at night when I have a larger financial cushion.

An interesting way to determine your financial fund would be to align it to the current unemployment rate. Therefore, since the US currently has 9% unemployment, it would be wise to save 9 months of expenses as it would take longer to find a job.


Use these calculators to see other methods of calculating your emergency fund:

Money Zine Emergency Fund Calculator

Bankrate Emergency Savings Calculator

Cash Flow

First rule to financial stability - earn more than you spend.

To know what you earn and what you spend, you should create a budget. There are easy ways to do this. My personal favorite is the Mint website. The website takes all of your accounts and puts them in one place. In addition to seeing the overview of each account, Mint also offers easy budgeting as it keeps a history of all your transactions and sets a suggestion for each budget category.

Before signing up for Mint.com, sign up for eBates.com. eBates is giving $5 to anyone who signs up for Mint.com using their referral link.