| Work out the numbers both ways. Paying off the high interest account first (your numbers):
Paid $150 total.
20% account interest: $0
15% account interest: $150.02
Debt has increased by $0.02 (after one month) Paying off the low interest account first:
Paid $150 total ($3.57 + $146.43)
20% account interest (on $115.50) : $23.10
15% account interest (on $884.57) : $132.69
Debt has increased by $5.79 (after one month) Bottom line: high interest debt grows faster than low interest debt. BTW, I understand why people might want to pay off small loans first, I have done it myself. It's nice to have one less bill, one less headache, etc. But financially it's not the best thing to do.
 |
