Money Talks, So Should You

Ask Jane: Should I pay off small debts or debts with high interest rates?

Jane Bryant Quinn
by Jane Bryant Quinn, Dimespring Contributor  (@janebryantquinn)

For maximum juice, tackle your highest-interest debts first.

That saves you the largest amount of money each month, and helps you pay down the balances faster.

For example, say that you’re paying 24 percent on a credit card. For every $100 in debt reduction, you save $24 in interest  money you can plough back into more debt reduction the following month.

If you use that $100 to lower a 12 percent debt, you save only $12. At that rate, it will take you longer to become debt free.

Some people like to pay off small debts first, even if the interest rate is low. It makes you feel good to get them out of the way.

READ: What risk factors lead to debt trouble?

If that’s what it takes to start you on a serious debt reduction, I say “Great! Go for it. Do whatever works.” But from a financial point of view, repaying high-rate debt gives you the most bang for the buck.

Jane Bryant Quinn is a nationally known commentator on personal finance, with books and columns read and trusted by millions. In her long career, she has established herself as America’s most reliable voice for people trying to manage their money well. Read more of Jane's articles here