If you want to get started investing I recommend you pay off all your debt first. Here is a post about why and when to pay off debt before investing. If you are serious about becoming debt free there are three options: 1. win the lottery 2. The Debt Snowball 3. The Debt Avalanche. I do not recommend wasting money on lottery tickets so that leaves the Snowball and Avalanche.
The Debt Snowball involves paying down the smallest balance first while the Debt Avalanche involves paying down debts with the highest interest rates first. Here is a quick look at the advantages of both of these strategies.
Advantages of the Debt Snowball
The Snowball strategy might be great for you if you find yourself losing motivation. By focusing on the smallest balance, you are able to apply extra income to the smallest bill and see the number of bills you have reducing giving you some small quick wins to further motivate yourself.
This is great if you have some of those smaller $20 a month payments with a balance of $100-$500. The more bills you have requires more focus and energy to make those payments, especially if you have not automated your bill paying yet. If you have ever missed a payment you know how expensive missed payment fees can be, the less bills you have the less likely you will be to miss a payment.
Advantages of the Debt Avalanche
The Avalanche is a another awesome way to pay down your debts. The difference with the avalanche method is that you tackle the debt with the highest interest rate first, regardless of what the total balance is. This is the method that makes more sense from a financial aspect, if you are disciplined enough to maintain the payment schedule. This way also saves you more money since you are eliminating the highest (most expensive) interest rates first.
The Avalanche will also get you to your goal of being debt free quicker since you require less money to pay debts you should eliminate all your debts quicker. Just be aware that you might not see much forward momentum at first, so do not get discouraged.
The Bottom Line
With both of these plans, when one bill is paid off, the next month you will apply what your regular payment would have been to the next bill in your order. You can see how once this gets rolling you will really be crushing your debts the closer you get to becoming debt free.
I always requested a proof of payoff or did a screen grab showing that I paid in full and would keep that copy for a few month to make sure nothing came back to haunt me. Regardless of which plan you choose it is best to have a plan and stick to it.
You may find several debt tracker apps and my favorite is the Debt Payoff Planner. This has both a free and paid option and the free option has excellent features and functions but you will have to manually enter your debt amounts and payments made. If you are looking for a budgeting or expense tracking app I like to use Personal Capital which also has a paid and free option.
