You will be able to choose a repayment order for several debts and explain why you chose it.
When you owe money in more than one place, you need to decide which debt gets the money you pay above the minimums each month. Once your repayment line is set, the monthly amount is fixed. What's left to decide is how to divide it. People with two or three debts often split the extra evenly. That feels fair, and each balance drops a bit every month. But because the money is spread thin, no single balance drops by much and nothing is paid off for a long time. Without progress you can see, it's easy to abandon the plan.
Start with the minimum payment on every debt, every month, without exception. A missed minimum costs you late fees and extra interest, and it leaves a mark on your credit report. Lesson 5.3 goes through what happens.
Everything above the minimums goes to a single target debt, which is the one debt that receives all the extra money until it is cleared. When all the extra goes to one debt, that balance falls quickly while the others are paid at their minimums. Within months you see one debt gone completely, and for most people that first paid-off balance is what keeps them on the plan.
There are two common ways to pick the target. The avalanche method, or highest rate first, ranks your debts by interest rate and targets the most expensive one. It saves the most interest, because each extra dollar goes to the debt that costs you most to leave alone.
The snowball method, or smallest balance first, ranks your debts by balance and targets the smallest. You pay more interest overall, but you clear a debt sooner, and some people need that early win to keep going. Either method does far better than an even split or paying whatever happens to be left over, so choose the one you will keep to.
Wei Ling, the course's example person, has two debts. All her figures are examples. Her credit card has S$3,000 on it at 26% a year, with a minimum of about S$90. Her personal loan has S$5,400 left, a fixed instalment of S$300 and an effective rate of about 7% a year. The card has both the higher rate and the smaller balance, so both methods choose it as her target.
Farhan, the course's second example person, has two credit cards, again with example figures: S$1,200 at 25% a year and S$4,500 at 28% a year. For him the avalanche targets the S$4,500 card and the snowball targets the S$1,200 card. He works out both methods, putting S$600 a month in total toward his cards and using a minimum of 3% of the balance or S$50. With highest rate first he is debt-free in month 11 and pays about S$790 in interest. With smallest balance first he is also debt-free in month 11 and pays about S$810 in interest, and he has the small card paid off in month 3. Both totals are rounded, so the exact gap between them comes to about S$25. It is small because his two rates are close together. He goes with smallest balance first, since having a card cleared by month 3 is worth more to him than S$25. If his rates had been far apart, the interest gap would be larger and highest rate first would be harder to argue against.
Once the target is paid off, keep its payment from slipping back into your everyday spending. Add the whole amount you were paying on it to the next target, on top of that debt's own minimum. This is called rolling the payment forward. Your total monthly repayment stays the same, but it is shared among fewer debts, so each one is paid down faster than the one before it. Repeat this until every debt is cleared.
For Farhan, clearing the S$1,200 card in month 3 means everything he had been paying on it moves to the S$4,500 card, added to that card's minimum. He still pays S$600 a month in total.
Fixed instalment loans need checking before you move money onto them. Lesson 5.1 pointed out that paying extra on one may save little and may bring an early repayment fee. After her card, Wei Ling's next target would be her personal loan, so she will ask her bank before moving her card payment there. Lesson 5.4 shows what she does after that conversation. If you have a fixed instalment loan, ask your lender two things before rolling money onto it: whether extra payments save much, and whether there is an early repayment fee.
You now know enough to set an order and begin. For the detailed comparison, see the course "Credit and debt: scores, cards, loans and BNPL", module 6 "Pay off debt faster with a plan you will keep". It has full worked examples of both methods and shows how to set up your debt list properly. Lesson 6.4 of that course, "Run avalanche and snowball on a worked example", works through the two methods side by side.
Pull up your latest statements and list every debt you have, with three figures beside each one: its balance, its interest rate and its minimum payment.
List your debts with balance, rate and minimum payment, pick your order and mark the first target debt.
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