Frugal Friday: Paying off Debt

I was trying to think of what I could say about being frugal... ... ... nothing was coming to me. Then, it hit me. I can share the tip our financial planner gave us.

It is nothing earth shattering. It won't make all of your problems disappear. But, hopefully it might help give some direction. You probably have even heard it before. But, here it is anyway.

Pay off your debts in order of smallest to largest. This really shocked me. I mean, what about the debt with higher interest? Shouldn't I get rid of that first? But the explanation made a lot of sense. If you pay off the smaller debt first, two things happen. First, you get the satisfaction of knowing you paid something off! This encourages you to keep at it. Second, once one is paid off, you can take the amount you were paying on it and apply it to the new smallest debt. As this proceeds, you will be continually be paying more and more on each of the larger debts and they will get paid off sooner.

Huh. Maybe this will work. So, we are trying it out. The first debt (the new furniture posted about here, which we got for 0% interest for a year with no payments) should be paid off in three months and then we can start applying an extra $100 to our credit card. EEK! That one is scary! Here goes nothing!

Also, see my post about paying of your home early. This could be applied to many kinds of debt.

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