Working through multiple debts can seem like slogging through quicksand.
We're told to line up our debts from highest interest rate to lowest. Tackle from the top and work our way down. But what if the card at the top also happens to have the biggest balance?
A typical example may look like this: You've got your maxed-out HBC card, because of the holidays, sitting at 29.9 per cent. Summer travel costs linger around at 19.9 per cent on your Visa. And there's that growing balance from meals out and mindless shopping on the card you use most often, your MasterCard, at 11.9-per-cent interest.
I was looking at multiple debts similar to this, and I became quickly discouraged by the lack of progress, and overwhelmed by the string of debts still waiting in line. So, I tried the opposite approach.
Instead of interest rates, I focused on balance - reordering debts from lowest balance to highest. I still paid the minimum payments on all outstanding loans, but the one with the smallest balance got everything else I could spare. When it was eliminated, I moved on to the second-lowest balance. I worked up the ladder instead of down - and was debt-free in slightly more than a year.
The first strategy would have saved me a little bit of interest in the long run. But I was motivated to stay the course with the second strategy. Every time I eliminated a debt, I could see the light getting a little bit brighter.
If you're working through multiple debts and haven't landed on a strategy that sticks, visit whatsthecost.com (click on "snowballing" at the left to get the calculator) and run your numbers. This will show you the results of the two strategies - attacking your highest interest rate first compared with the smallest balance - so that you can compare. It will also give you your let's-have-a-party-I'm-debt-free date. And that's a motivator regardless of strategy.
The bottom line: Pick the strategy that's right for you. The one that sticks will have you raising a glass even sooner.
Angela Self is one of the founders of the Smart Cookies money group.