A House Divided

Growing up, that phrase meant this:

VS

I went to FSU and my mom went to UM for her MBA. My brother foolishly supports the ‘Canes, but whatever, I still love him.
However, in this instance I am referring to the two different approaches to paying down credit card debt. I’ll give you an overview of each and then my very awesome opinion, which is the only reason why you keep reading this blog full of the best writing you’ve ever encountered.

The Rolling Stone Way
This approach involves paying down your highest balance first, regardless of the interest rate. The idea is that as you pay off your highest balance, you’ll be more excited to pay down the other balances. You do this by paying the minimum balance on your other cards and funneling all the rest of your extra cash into the higher balance card. As that cards minimum balance goes down, you keep paying the same amount, which will accelerate the payments.

So if you have 3 cards, one has a minimum payment of $100, one at $25 and one at $15, and you have an extra $50 a month to put towards your cards, you pay $150 to the first, $25 to the second and $15 to the third. Eventually you have one card paid off and you move onto the next where you, again, pay the same amount. Since you’re on a lower balance, this will pay off the balance even faster than the first card.

So now on your second card, even though the minimum balance is $25, you pay $175, $150 from your first card and $25 from the second card. Bam! It goes down even faster.

Eventually, you’ll have paid off all your cards and have a nice chunk of money that you can put towards savings every month or use to get some lovely health insurance. You’re definitely not going to rack up credit card debt again.

The Slash and Burn Way
I have no idea where these titles are coming from.

In this method you pick the card with the highest interest rate, regardless of the balance. But you use the same idea as above, where you will use payments to other cards to help pay down your next card. Using this method you theoretically pay less interest since you’ll be tackling the higher interest cards first and you’ll be paying less in interest as you go on, making the amount you’re paying into your principal higher as you move through your cards.

Opinion Time
I believe in doing a small bit of analysis first. Are your cards all of roughly equal balance? Or is one way higher than another? If they’re all equal, I would recommend using the Slash and Burn Way because then you really are avoiding paying more interest.

However, if you have one card with much more on it to pay off, I would recommend the Rolling Stone Way since you are ultimately paying more (though not necessarily higher interest) on that balance just by continuing to carry it.

I lovingly call that way the Seminole Way. No I don’t, but it’s funny, right?

College loyalties aside, do a quick analysis of your cards and you can quickly determine which of the two methods is best for you.

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