There are two main strategies for paying off debt.  I’m sure you’ve heard of both:

1. Pay off your debt with the highest interest rate first, or

2. Pay off your debt with the lowest balance first

Both are fine options and I wouldn’t disagree with you for choosing either of these methods, but I’ve got a third debt elimination plan for you to consider.  One that I don’t think you’ve heard of yet.

3. Pay off the debt which you hate the most!

POPULAR DEBT PAYOFF STRATEGIES

Those that argue for paying off debt with the highest interest rates have the easiest case to make.  If a penny saved is a penny earned, then eliminating high interest debts first makes the most financial sense.  It’s hard to argue with the math.

The other popular debt elimination plan is to pay off your debt with the lowest balance first. Rather than focusing on the finances and numbers, proponents of this approach are going for a quick, psychological win that will keep you motivated in your fight against debt. Again, I see the value here and it’s tough to argue against the psychological value of winning.

If you choose one of those methods to pay down your debt then I’ll be cheering you on.  But I’ve got a different approach to paying off debt for you to consider: make it personal.

A DIFFERENT TYPE OF DEBT ELIMINATION PLAN

From a logical standpoint it’s hard to argue with the two most popular approaches.  They’re popular for a reason, but my debt elimination plan, while maybe a bit different, has its own kind of logic:

Attack whatever debt you despise the most, regardless of the loan balance or the interest rate.

This is my preferred approach because it’s the most motivating for me, and I suspect that it might be equally motivating for you as well.  And when you’re paying off debt, whatever motivates you is the right approach.

Essentially my approach of making this personal channels your inner humanness.  We humans don’t like to be wronged and we seek out justice whenever we feel slighted.  Why not take that human quality and focus it onto your finances?

CHOOSING WHICH BILL TO PAY FIRST

Let’s say that you’ve got the following four debts.

DEBT

BALANCE

INTEREST RATE

Student Loan

$20,000

9.5%

Credit Cards

$10,000

14.5%

Auto Loan

$8,000

10%

Medical Bill

$12,000

12%

You know that paying just the minimum balance on each of these loans isn’t wise, but you don’t’ know which debt to apply your extra money towards first.  So where do you start?

• The student loan has the highest loan balance.
• The credit card has the highest interest rate.
• The auto loan has the lowest loan balance.
• The Medical bill is neither the high nor low in any category

The mathematicians will tell you to pay off the credit cards since that’s the most expensive loan you have.  The psychologists  would start with the low balance and take the quick win you’d get from paying off the auto loan.  Tough to argue with the logic in either argument.

But that medical bill happens to be from a tattoo removal procedure you underwent to forget about (S)He Who Must Not Be Named.  You’ve got some issues with that debt, and that’s where I’d consider putting your bulls-eye.

It might not be the logical approach, but debt isn’t logical.  If it were, we wouldn’t get ourselves into so much debt in the first place.  So rather than being logical about it, I like to make it personal.

One of the quotes I love is “relentlessly eliminate the bullshit from your life.”   Ditto that for debt.  It feels soooooo good to know that you’re eliminating something from your life which you hate so much.  Use that hate to fuel your drive to a debt free life.

Chime in!

What do you think of this approach to paying off debt?  Do you have any bills you hate so much that you’d rather get rid of it ahead of a higher interest rate or lower balance debt?  Please leave a comment and let me know.