Paying Off Your Lowest Balance Debt FirstRegardless of the interest rate high or low you pay off the bill/debt with the lowest amount owed. Remember with each way, high interest or lowest balance 1st, you need to make sure you pay the minimum on all other bills/debt on time each month. But on your lowest balance bill you’ll be paying extra on it to pay it off quicker. Then once that bill is paid off you will take what you were paying on the paid off bill and apply it to the next lowest debt as well as the regular monthly payment on that bill. So for example you have 4 bills, with the following balances $500, $1,000, $1,900 and $2,500. And for simplicity we’ll say the monthly payments on all of them are $50 each. So the goal is to pay extra on the lowest bill, so on the $500 bill you pay the regular $50 monthly payment as well as, let’s say $25, extra, making the monthly payment $75 on this bill, all the while continuing to make the minimum payment on the rest of the bills. Then once the $500 debt is paid off, you’ll take that $75 you were paying on it and apply it to the next lowest balance bill, so that you will be paying an additional amount on top of the bill for a total monthly payment of $125, and so on until you pay off all your bills/debts. So you can see how easy & quickly the last bills can be paid off. Remember the trick here is to make sure you take all those payments from previous bills that have been paid off are applied to the next lowest bill/debt. Do not create more debt. As you can see from this example you’ll be now able to light at the end of the debt tunnel, by knocking out the smallest bill balance first and increasing the payment on the next lowest and so on. A lot of us need a visual to feel like we are making a dent in getting rid of our debt. By having the visual worksheets (see Get Out of Debt page), I could see my debt going away, and if I didn’t pay extra or paid late, I would just kick and tell myself look at what you are throwing away (the interest & late fees). I think seeing that on paper made the biggest impact on me. By seeing a total of all interest and any other fees I was paying each month was the biggest eye opener for me. I didn't like wasting money like that. So as each bill was paid off on my worksheet I would change the color of that line so that it stood out. The more color I saw the quicker I wanted to get rid of the next bill and the next. Once you have paid off all your debt/bills, make no more. Instead start those savings accounts for those items, vacations or retirement that you want. Just imagine, wouldn’t it be nice to just walk into someplace and pay for an item outright not bills, no debt. Pay yourself first, be your own loan office, have the money saved up and buy whatever you want. Ready? Go!If I could do this, so can you!
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