Stage three to becoming debt free and setting up for financial success

Now that we are set up with an emergency fund and budget in place it is now time to start getting rid of all your consumer debts and paying off any loans that you may have along with paying off car payments and if possible any student loans.

You can really start with whichever debt you like.

You could start paying off the smallest debt as this will allow you to see some debt repaid early this quick pay off of one of your debts can provide good motivation early on, that will allow you to stick to your debt reduction plan. Once this first debt is paid off this will then allow you to concentrate the money saved on the first debt to repay your next biggest debt. You can then continue this method to pay off all your remaining debts until they are all paid off. This should leave you with plenty of income to spend to build up your retirement or to save towards a house or other goal.

The other option would be to pay off the debt with the highest interest rate. This will save you more money from the interest rates and stop you accumulating as much debt. With this you will not see a debt payment paid off as quickly as the above method but you may find over the longer term that you will need to pay back less interest. So over the long run you will likely pay less money to the banks. Once you have paid off the highest interest rated debt you then use the payments to pay off you second highest interest rated debt until they are all paid off.

Really before you choose either method you need to look at which method you will find easiest to stick to. Once you decide on this it is also a good idea to look into which method will cost you the least to pay off all of your debt. If you think you can stick to either method then I would recommend paying off the method that requires you to pay the least amount of interest and payments. However if you think you will find one of the methods more difficult then you should go for the one that you think you can follow.

If you really are sure and cannot work out which would be cheapest over the long term then I would go with paying off you smallest debt first and paying that off as quickly as possible. Like was said earlier this will allow you to see a debt paid off quickly.

Once you have paid off all of your debt this will allow you to have plenty of money to use for any other things that you want to do. Remember after all this time paying off all your debt you should now avoid going into more debt again so if you need to buy anything you should save as much money so you can pay cash.

The Normal Person

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