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The highest debt will almost always have the highest interest amount. The rate is what matters in this case.
As ncole pointed out, if you need the "quick win" to keep you on track, go with the lower balance, but from a pure financial perspective, you get more savings by paying off the higher interest debt. Focusing on $40/$8 ignores the fact that $100 could reduce the $40 to $38, while only reducing the $8 to $7.75. It all depends on the interest rate.
What do you mean by getting more savings by paying off the higher debt?
What do you mean by getting more savings by paying off the higher debt?
I actually said the "higher interest debt" as in the debt with the higher interest rate.
Regardless of balance, paying $100 in debt at 20% will save you more than paying off $100 in debt at 10%.
If your balance on the 20% card was only $1,000 but the balance on the 10% card was $5,000, the 10% card would be costing you $500/year while the 20% card will cost you $200/year.
Let's assume you have an extra $100 to use to pay down either debt.
Even though the 10% card is costing you more in interest($500/yr) paying that down by $100 would only save you $10/year. If you were to pay down the 20% card, you would save $20/year.
Paying down the higher interest rate card always saves you more in the long run, but many people have a hard time continually fighting against a debt that seems to barely get smaller. That's where the "personal satisfaction" value starts to come into play.
Fiscally: Pay down the higher debt. End of story.
Personally: It becomes a matter of what can you stick with because if you get overwhelmed and cut back on your payments because you feel you're accomplishing anything due to the high balance, then you would have been better off paying off the smaller balance.
Emotions and finance are always complicated when they mix. It's what makes "Personal Finance" so complicated. The fiscal answer is easy though.
I actually said the "higher interest debt" as in the debt with the higher interest rate.
Regardless of balance, paying $100 in debt at 20% will save you more than paying off $100 in debt at 10%.
If your balance on the 20% card was only $1,000 but the balance on the 10% card was $5,000, the 10% card would be costing you $500/year while the 20% card will cost you $200/year.
Let's assume you have an extra $100 to use to pay down either debt.
I guess I have to
Even though the 10% card is costing you more in interest($500/yr) paying that down by $100 would only save you $10/year. If you were to pay down the 20% card, you would save $20/year.
Paying down the higher interest rate card always saves you more in the long run, but many people have a hard time continually fighting against a debt that seems to barely get smaller. That's where the "personal satisfaction" value starts to come into play.
Fiscally: Pay down the higher debt. End of story.
Personally: It becomes a matter of what can you stick with because if you get overwhelmed and cut back on your payments because you feel you're accomplishing anything due to the high balance, then you would have been better off paying off the smaller balance.
Emotions and finance are always complicated when they mix. It's what makes "Personal Finance" so complicated. The fiscal answer is easy though.
I guess I have to call customer service because I don't know the interest rate for either card. I'm thinking discover card is 12%
Saving more money makes me feel like I've accomplished something.
I don't need mind tricks.
You can do both. How is paying off debt and feel good about it mind tricks?
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