Paying your debts off starting with the one with the lowest total balance is the best method for those who need to see quick victories in debt elimination in order to be motivated to keep going down that road. After that bill is paid off then you would move to the next lowest total balance and put all your disposable income, after making minimum payments on all other bills and expenses, toward eliminating that debt. You need to keep doing this until all your debts are paid off as well as refuse to take on more debt in order for your financial situation to turn around and take you into the land of financial freedom. Some studies have surmised that more people stick with debt elimination using this model because a quick victory or two keeps their excitement and drive for financial freedom at a very high level.
The top down bill payment method is a mathematically sound way to pay debts off because it allows you to minimize (to the lowest possible level) the amount of finance charges you pay. As discussed above it may be best for most people to use the lowest total balance method explained above. But for those who will remain motivated the top down method works. I and many people I have served have used it to more quickly reach the land of financial freedom and monetary wealth.
Using this model, you pay only the minimum due on each bill except the one with the highest finance charge. Put all extra disposable income that’s not needed for groceries, gas, and other necessary items with the minimum payment for this account each month until it's paid off. Then its minimum payment plus the extra disposable income is available to pay down the account with the next highest finance charge. Continue this process down the ladder of lower percentage finance charges until each bill is paid off.
If you have more than one account with the same finance charge and the same or different outstanding balances, pay off the one that you will be able to use at many different retailers and borrow cash from in case of an emergency. If both accounts let you do this, then use all of your extra income to pay off the one with the lowest outstanding balance so you can more quickly pare down the number of creditors.
An extra step that could help you eliminate debt faster when using either of these methods is, for debts that would take you more than a year to pay off, to shop a number of financial institutions to find an account with a finance charge (annual percentage rate) that is much lower than what you’re paying now. Make sure it has no early pre-payment penalties and no closing cost / fees that the lower payment will not make up for in the next few months. Then, refinance by transferring the balances on higher interest accounts to these accounts to give you a lower payment overall. Now, in your budget replace the old higher minimum payment with the new lower minimum payment and thank the LORD for showing you methods that can help you reach financial freedom much faster than otherwise possible.
Please pray for this ministry and email any questions. May God bless you richly as you follow His plan!!!
Deuteronomy 28:12-14, Proverbs 22:7, Luke 16:8, Romans 13:8
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