There are several schools of thought on this. Some people say, pay the
highest interest rate first, because you save on interest costs first.
On the other hand, Dave Ramsey of the EXCELLENT personal finance site
http://www.daveramsey.com/ says debt reduction is only 20% mathematics
and 80% psychology so he recommends paying off the smallest balance first
so you get the emotional boost of knocking one completely off. Another
school of thought is pay the most on whichever account has the highest
percentage utilization.
However, if your balances are large enough that it will take you more than
a few months to pay them in full, or if you have a pattern of paying them down
for a while and then the car breaks down or something, then perhaps you need
to examine more closely where your money goes. Take a look over the last 24
months and total up all the "surprise" expenses: car trouble, furnace needs
replacing (I replaced my furnace Fall 2007), air conditioner compressor dies
(I had to replace that a couple years back), teeth need Root Canal (had TWO
of those in 2007), etc. Add them all up for the past two years and divide
by 24 and that's how much you need to be putting in the bank in every "normal"
month so you can cover "surprises" without going further into debt.
TU 791 02/11/2013, EQ 800 1/29/2011 , EX Plus FAKO 812, EX Vantage Score 955 3/19/2010 wife's EQ 9/23/2009 803
EX always was my highest when we could pull all three
Always remember: big print giveth, small print taketh away
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