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Debt Payoff Plans

Begin ArticleThere are about as many plans for paying off debts as there are financial gurus and counselors in the world.

Over the years, of course, the rule-of-thumb advice has been simple: Pay off debts according to their interest rates. That is, debts with the highest rates should garner most of your payoff energy. Conversely, tax-advantaged debts (such as mortgages, home-equity loans, and student loans) should get extra payments only after all other debts have been dispatched. (And some financial planners would debate you on whether it's ever a good idea to pay them off early.)

Logically, that "Pay Your Highest-Rate Debts First" scheme should be the way to go. If the idea is to save as much money as possible, then the nastiest debts — the ones that cost us the most interest per dollar borrowed — should be the ones we get rid of as quickly as possible.

But where money is concerned, logic isn't always the overriding factor. After all, if logic reigned supreme in your life, you wouldn't carry revolving balances on your credit cards, would you?

With that in mind, here are a handful of debt-reduction plans offered by current money authorities. Honestly, you'll find that the versions offered here are pretty limited. If you would like more details, you should follow the links on each plan's page to the authors' related books. (Or, better yet, see if you can pick them up from your local library!) The authors explain their methods much better than I can!

One last note: In what may be one of the best money quotes I've ever read, Mary Hunt wrote the following in her book The Cheapskate Monthly Money Makeover:

The key to rapid debt repayment is to make a plan and then stick to it as if your life depended on it. It may. The details of the plan you devise for your own debt reduction are not nearly as important as your determination to carry it out.

That, I think, pretty much says it all. Debt reduction isn't always about the math.

More often, it's simply about how badly you want freedom.

"I've done the math, and it's going to take me at least four years to pay off these credit cards," a reader once told me in an email. "That is such a long time."

"You're right — it is," I replied. "But where will you be in four years if you don't start now?"

The Debt Payoff Plans

  Dave Ramsey's "Debt Snowball"

  Mary Hunt's "Rapid Debt Repayment Plan" (RDRP)