Timing Tricks for the Best Way to Pay Down Debt

Pay down your debt more smoothly by developing a strategy that times which bills you pay first and which you pay next. Follow a process of paying off each debt in an orderly fashion and, once one debt is paid, use the money that would have gone to that debt to build a bigger arsenal of money to hit the next debt. By using timing tricks like this, you can tackle your debt with little stress.

Debt Snowball Plan

The debt snowball plan takes its name from the concept of forming a snowball: you start with a small snowball and gather snow around it until it's as big as you need it. In the debt snowball plan, you make minimum monthly payments on all debts except one, to which you dedicate as much money as you can spare. After you repay that debt, you focus your efforts on repaying the next debt on your list so that by the time you have one debt remaining, you have "snowballed" the money you saved by eliminating other debts to pay it off. Financial experts, including Dave Ramsey, advocate this plan though they disagree on the most effective way to order your list.

Highest Interest First

Though two loans may seem identical, their interest rates can make one loan cost more than the other. For a simple example, if you have two $3,500 loans, one with a 14 percent interest rate and the other with 5 percent interest, you can owe $490 in interest on the first and $175 on the second in a single year. For this reason, some financial advisers recommend paying off the debt with the highest interest first, regardless of its amount.

Highest Monthly Payment First

One benefit of paying off debt is lowering your monthly payments. So, you might order your debts by the amount of the monthly payment, starting with the largest payment first. For example, if you have three debts with monthly payments of $75, $225 and $180 respectively, put your snowballing efforts toward paying off the one that costs $225 a month first. After you pay it off, use the $225 you save every month to make larger payments on the debt with the $180 minimum due.

Lowest Amount First

Though Ramsey agrees that it makes mathematical sense to pay off the debt with the highest interest first, he recommends starting with the smallest debt instead. He argues that since you can eliminate this debt more quickly than the others, it should be first on your list to encourage you to keep up the good work by tackling the others.