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Question for the Money Doctors

Question submitted on Sep 25, 2013.

Question

What''s the benefit to paying off credit card debt according to interest rates rather than balance? I read recently about starting with the lowest amount, regardless of interest rate, in order to get the "snowball" rolling.

Answer

The “snowball method” to which you refer relies on the enthusiasm generated by paying off small debts. It assumes that the sense of accomplishment will motivate you to pay off the next card, and the next…

The benefit to paying off credit card debt according to interest rate, highest first then lowest, is that you will pay down your overall debt faster and your total out-of-pocket cost will be less.

While paying off the debts with higher rates first will save you the most, choose the strategy that will help you stay disciplined in achieving your goal.


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