I can't even start Profit First until I dig my way out from this mound of debt!! Or can I?
Aug 05, 2022I have lots of debts including credit cards, personal loans, and banks loans. Some are very high interest rates. Which debts do I pay first?
While logically you want to pay off your highest interest rate loans first, Profit First is all about leveraging human behavior. One of the critical behaviors is “early successes.”
When we see early, even if it is small, progress in our management of money, we become more committed to the process. In regards to debt, Dave Ramsey (author of The Total Money Makeover) suggests a technique that is in perfect alignment with Profit First.
The process is simple. First, sort all your debts from the smallest amount due to largest. Then put all your financial effort in eradicating the smallest debt (in dollar amount) first, while maintaining the minimums due on all other debts.
Then once the smallest debt is paid off, target the next smallest debt on your list. Wipe that out, and then hit the next. This will build a series of “early successes” and create a “snowball effect” as more and more money is freed up (as the small debts are paid off) to target the remaining debts.
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