Debt Avalanche

When being attacked by multiple opponents, one strategy runs that the oppressed attacks the largest and most intimidating one first. (Think: first-day-of-prison for you future felons out there.) By doing so, you can psychologically deflate their advantage while boosting your own confidence as to your capability for victory.

In theory.

The same theory can be applied to dealing with multiple debt sources, each "oppressing" you. A Debt Avalanche strategy is one where you set out to eliminate your largest problem first, i.e., the largest amount with the the highest interest rate. The total available amount of monthly funds for debt elimination is tallied, with minimum requirements for each outstanding debt servicing calculated. Any remainder is applied toward the debt with the largest drain on resources when sustained.

Okay, so one payment has $2,300 in debt at 4% and another has $2,100 in debt at 7%. The fattest, toughest, biggest kid in the prison yard is the debt of $2,100 costing 7% in rent. That debt is ultimately costlier and should be the one first targeted. Once the first one is paid off, then the strategy continues to the next largest and so on. The psychological relief at removing a major debt overhang and dealing systematically with the others will help to reduce stress, and as your credit rating approves, opportunities to refinance may even be presented to you.