Financial Literacy 2008 - Debt Management
A cartoon man in yellow with a red lawnmower mowing a large piece of paper reading, "BILL"
6-step debt-elimination program

2. Create a plan 
Now that you know where you stand, take a short self-inventory to determine the appropriate repayment plan.

There are two main approaches to paying off debt.

2 ways to pay off debt:
  • High to low. You pay off the card with the highest interest rate first. This gets the most out of every cent you send.
  • Big to small. You pay off the card with the biggest balance first, regardless of interest rate. This creates big results fast, but may not be the best bang for your buck.

A simple example illustrates how each approach works. Let's say you can afford to pay down $1,000 worth of debt each month. You have 10 cards and the minimum payment due on each of your accounts is $50, for a total of $500.

Regardless of which approach you choose, you pay $50 on nine of the cards, for a total of $450. That leaves you with $550 to apply to your remaining debt.

Using the high-to-low, approach, you would apply the remaining $550 to the card with the highest rate. Using the big-to-small approach, you would apply the remaining $550 to the card with the biggest balance, regardless of interest rate.

"Either method is effective, it just depends on what type of consumer you are," says Christopher Viale, president of Cambridge Credit Counseling Corp.

"Knowing your own style is the most important thing because if you come out of your style, you're not going to stick with it."

Whatever method you use, don't forget to apply a little common sense to your calculations, says Scott Bilker, creator of

"You'll hear a lot of experts say you should pay off the one with the lowest balance first," he says. "But that doesn't work out very well if the lowest balance happens to be zero percent and the highest balance is 20 percent. Why on earth would you want to focus on the zero-percent card first?"

Once you've settled on a plan, take a minute to put pen to paper (or fingers to keyboard) and write down your goals: How much will you devote each month to paying back debt? How much will you save? What are your other financial goals?


"If you put it in writing, you're more likely to get where you want to be," says debt expert Gerri Detweiler. "Part of what I researched for my master's degree was financial psychology, and the research tends to show that those who write down and monitor those goals are more likely to get there."

Show Bankrate's community sharing policy
          Connect with us
Credit cards on a table

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

Debt Adviser

Get debt collector to quit calling

Dear Debt Adviser, My problem is collection agencies keep calling my home number asking for people who not only don't live here, but have never lived in my apartment. People show up at the house demanding to see the person... Read more

Partner Center

Connect with us