Debt Reduction Strategies

1) Debt Snowball (Lowest Balance First): This method is the official debt snowball strategy. The benefit of this method is the psychological effect of seeing the number of debts disappear quickly. According to Dave Ramsey, it's important to build momentum and see success early on. After all, if it was easy to pay off debt, you probably wouldn't need this calculator. :)

2) Highest Interest First: This strategy results in the lowest total interest, but depending on the balance of your higher interest loans, it may take you longer to see your first loan/debt completely paid off. If the difference in the total interest is not significant, than you may get more satisfaction and success from the Lowest Balance First method.

3) No Snowball: Select this option if you want to see how long it will take to pay off the debts based solely on the individual payments you specify (i.e. no snowball effect). In some cases, you may find it will take more than 30 years to pay off some debts.

4) User-Specified Order: There are three options for choosing the order that you want to pay your debts. You can choose "Order Entered in Table", which is self-explanatory. You can also use the Custom column to enter your own formulas or your own ranking and choose "Custom-Highest First" or "Custom-Lowest First". I'd suggest ranking each row using values "10, 20, 30, 40, etc." . The reason to enter the order by 10's or 100's is so that you can easily switch the order. For example, you can move the one marked "30" ahead of "20" by changing the 30 to 19. You can also use the built-in SORT command via the Data menu.

Variation on the Debt Snowball Strategy If you choose the "Lowest Balance First" method, and two of your balances are roughly the same amount, but have very different rates, you might want to switch the order that you pay them off so that you pay the higher rate first. It might not make much difference in how long it takes to pay them off, but it could make a difference in how much interest you end up paying.