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Author: SpeleoFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Re: Credit Card Debt and Other Debt Date: 10/5/2000 4:13 PM
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...I took all of my debt and ordered it from the smallest to the largest....
...The savings just in interest that I will enjoy are in the neighborhood of $80,000. Is there anyone out there that has any thoughts on this?


Yes. You'd save more money by ordering the debts from the highest interest rate to the lowest. Paying off the smallest amount first may be an effective way to eliminate bills, but it's not the best way to save money. While you're busy paying off the small bill, your debts with higher interest are busy compounding that money against you. When you get around to paying them off you'll be facing a higher debt load.

If you're still not convinced, step back from the trees for a minute and look at the forest. How much money do you owe? That's your total debt. Your real goal is to make that go away as fast as possible, right?

Now, forget about your accounts for a minute. That's like worrying about who owns your forest. What you really have are a bunch of dollars subject to various interest rates. Some dollars might belong to a credit card at 16% interest (I'm guessing here, since you didn't post any real numbers). Left alone, in a year, each of those dollars will become $1.16. If you have other dollars at 8% (car loan, perhaps?), those dollars will become $1.08. Since you can't pay everything now, you have to let something grow. But why let $1 become $1.16 when you could let a different dollar become $1.08? Do yourself a favor--pay the higher-interest debts first.

BTW, it sounds like you've run some numbers already. I'd love to hear how much more you'd save by paying high interest debts first. Do tell!

SpeleoFool.
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