There's some debate among financial planners as to the best method to pay down debt. Some say paying the highest interest rate debt initially is the best way while others declare paying the smallest balance initially is the very best way.

Both methods have advantages and disadvantages, so this article will take a look at both, and help you to decide which method is best for you.

Method #1 - Highest Interest Rate

In this method, you focus on paying off your highest interest rate debts initially. The basic steps in this method consist of:

1. Listing all of your debt by interest rate, from the highest interest rate to the lowest interest rate.

2. Commit to paying the minimum payment on every debt.

3. Decide how much additional could be applied to the highest interest rate debt.

4. Pay the minimum quantity plus the extra amount towards the debt with the highest interest rate until it is paid off.

5. When that debt is paid off, apply the quantity you were paying to the debt that is just been paid off to the next highest interest rate debt until paid off.

6. Repeat until all debts are paid in full.

This method is the very best method mathematically, as you'll pay much less interest in the lengthy run.

Method #2 - Lowest Balance

In this method, your focus is on the debt with the lowest balance. Note: this method is frequently known as the Debt Snowball technique. The fundamental actions in this method consist of:

1. List all debts in order from the smallest balance to the largest balance.

2. Commit to paying the minimum payment on every debt.

3. Decide how much extra could be applied to the smallest balance debt.

4. Pay the minimum quantity plus the additional amount towards the debt with the smallest balance until it's paid off.

5. When that debt is paid off, apply the amount you were paying to the debt that is paid off to the next smallest balance debt until that one is paid off.

6. Repeat until all debts are paid in full.

This method might not be the very best method mathematically, as you'll pay more interest within the lengthy run it takes to pay debt off. However, this method allows you to pay smaller debts off quicker, which might give you the motivation you need to stick to your debt payment plan.

So, which method is best for you? It depends…

Method #1 is greatest for you if:

• You have debts with comparable balances

• You have discipline to stick to your debt repayment plan

• You're a numbers person, and you realize the benefit of paying off the highest interest rate debt first

Method #2 might be greatest for you if:

• Your debts do not have comparable balances - i.e., you have a $500 credit card balance, a $12,000 credit card balance, and several in between

• You require motivation - paying off the smallest credit card balance may be the motivation you need to stick to your debt repayment plan

• You don't mind paying more interest over the lengthy run in exchange for obtaining rid of smaller balances initial

• You have a history of late payments -

Tip: Why not use a mixture of the two methods? Using a mixture of both methods permits you to really feel a sense of accomplishment by paying off that first debt (the smallest balance credit card), and gives you the motivation to start working on the next debt (the debt with the highest interest rate).

Remember, the technique that works best for you is the technique you'll really use. The most essential factor would be to make a plan and stick to it so you can live debt free.