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If you're living comfortably and securely, your goal should be to prioritize your debts so as to pay them off as quickly as possible. One method of doing this involves paying off debt win order from the highest interest rate to the lowest. This is the fastest and most efficient way to pay off debt, and is referred to as a the "debt avalanche" technique. Organize your bills and paperwork and examine the terms and conditions of your loans to determine the interest rates you are being charged on each form of debt you owe. Use this information to create a written schedule that lays out when you will pay off each debt. Be sure to consider fees that may affect your priorities. For example, some credit cards have annual fees that you can avoid if you pay off and cancel the card though you should be aware that canceling the card comes with its own disadvantages, as it may adversely affect your credit score. Some loans have prepayment penalties, which may make quickly paying those loans off less cost-effective than it would be if you had only to consider the interest rates. If the interest rate on a particular account is subject to change, as is the case with credit cards that have introductory rates, be sure to consider this. Your priorities may need to change when the rates change. When prioritizing by interest rates, use the effective interest rate, the rate that takes into account any tax deduction. This is usually applicable to mortgages or student loans. Since interest payments on these loans are tax-deductible, the cost of such loans is actually a bit less than the stated interest rate. Calculate the effective rate by multiplying the stated interest rate by 1 minus your income tax bracket. For example, if you're in the 30% tax bracket and you have a mortgage with a stated rate of 10%, the effective interest rate is 7.0% (10*(1-0.30)). Even though you are focusing on paying off one source of debt at a time, be sure to keep from incurring more by paying the minimum monthly payments on other debts. Take these amounts into consideration before putting the rest of your money towards paying off your target debt. It may be a good idea to create an excel document to keep track of these payments and when they are due. This will generally be a credit card or a personal loan. If you really want to get out of debt, you will eliminate unnecessary expenses and put as much of your income as possible towards paying off this debt. This will allow you to pay it off quickly and move on to the next debt. Once you've paid off the first debt, proceed to the next-highest, and so on until you're debt-free.
Determine if this method is right for you. Put your debts in order by interest rate. Keep up with minimum payments. Pay as much as you can on the first debt. Move on the debt with the next-highest interest rate.