Many people are in debt to multiple folks for many small or medium sums. This happens a lot with credit cards, and even when you find that you have some spare cash to work with, deciding who to pay can be somewhat tricky.
Often, people target the smallest bills first, but that may not be optimal. With a little organizing, it is easy to pick which bills to target. This method, also called Debt Snowballing, can really help.
Step One: Get Extra Money
In case it wasn’t obvious, you can’t pay down your total debt if you are running it up somewhere else. Stop digging yourself in further. It may seem hard at first, but the feeling of swimming instead of treading water is worth it. Once you have a surplus, it is time to start paying your bills down.
Step Two: Consolidate if Desirable
Consolidating your bills can be a great idea or a disaster. If you have a lot of bills, and you stand no chance of paying them all down fast enough, consolidation can really help. Just knowing that you don’t have to make ten minimum payments each month can help.
On the other hand, it is a bad idea to consolidate into a higher interest account, or with a major fee involved. If you can get a year of 0% APR, it may be worth it, but you need to realistically decide if you will be able to pay it off before the 0% APR runs out. It really hurts to feel like you are getting somewhere, only to discover that you are about to be hit with even more interest.
Step Three: Put It In Order
Put your debt and credit cards in order, from highest to lowest APR. For any and all debt that is not the highest, pay only the minimum payment. It is no fun to have it sit there, but your money is worth more when placed in a big sum into the highest APR accounts. Pay those off and the debt begins to accumulate more slowly, until eventually, it is more than manageable.
As you pay each account off, move on to the next credit card or loan on the list. Avoid things with really low interest rates, like subsidized student loans or 0% APR introductory accounts, at least until interest rates kick in. Send as much as you can to the highest APR bill.
It pays to never get buried in credit, but if you have no choice, get out of credit jams the smart way. Pay off the costliest debt first, and move on to the lower ones. It may seem appealing to pay off low balance cards or easy items, but you cost yourself real money in the long run.