1. Write down all of your debts, what the current balance is, and what the minimum monthly payment is (not the amount you pay, but the minimum balance per the loan or statement).
2. Okay, now for most people’s LEAST favorite part: Divide the current balance by the current minimum monthly payment.
3. The one with the lowest number is the one you want to start with.
If the number is less than 50, you really want to focus on getting it paid off. Do you have two close together? Use the APR as a tie-breaker!
If the number is 51-100, consider if you could use your money to greater advantage elsewhere. If this debt has a low APR (<5%), you may be able to invest your excess disposable income to invest in other opportunities, increase your emergency savings, or use it to increase your knowledge.
If the number is greater than 100, you really do not need to worry about paying it off quickly at all. When the number is this high, there are so many other opportunities to leverage your money strategically to turn it into even more!
I found that, for me, credit cards tended to be below 50, my student loans were in the 51-100 range, and my mortgage was over 100
How do your debts line up?
ps- As always, do what feels right to you. There are so many options when it comes to choosing which debt to focus on paying down first. I did not create this formula, but it is so genius that I am compelled to share it with you. I wish I knew who first created it! But, like the snowball method, envelope method, and so many other methodologies, it is so old and has been passed down from generation to generation to the point where we may never know.