Debt Elimination Techniques

Americans are drowning in debt, not just as a county but personally as well. This is why living on a budget and managing debt are some of the most popular New Year's resolutions year after year, according to USA.gov, the U.S. government's official website. However, in order to manage debt, you need a plan. Determining which debt elimination technique will work for you depends on your personal priorities and goals

Wingin' It

While not supported by any financial advisor or expert, many people who have not done their research simply pay off their debt randomly each month without regard to priority. The reasons are often as circumstantial and arbitrary as credit card number three's payment due date was the day after the extra paycheck of this particular month or the tax refund can pay off a particular debt completely. This is not a good strategy since progress is sporadic and without a specific plan, the effectiveness of debt elimination is minimal at best.

By Interest Rate

Most financial advisors recommend that you prioritize your debts from highest to lowest interest, paying the minimum payments on everything but the highest interest rate debt. The highest interest debt requires every other spare dollar you have to pay down your debt. This plan is the most calculating and logical as paying off the debt with the highest interest rate first will save you money in the long run from the worst interest rates. It will also effectively get you out of debt faster than other plans, a fact that draws many people's approval.

Snowball

There are some financial gurus that back something other than the "highest interest rate first" plan. Dave Ramsey, a financial expert and author, believes that people need a psychological boost for a debt elimination plan to be effective. Snowball debt elimination lists your debts from smallest total owed to largest. Like the "highest interest rate first" plan, the snowball has you pay only the minimum payments on all but the smallest debt, to which any available money to pay off your debts is put towards. The argument is as the smaller debts are paid, the debtor receives psychological encouragement from crossing off the debt from the list of creditors and will thus stick to the plan with more enthusiasm than in other setups.