Consumers often have a number of bills to worry about, and with debt mounting, they can become confused as to just what they should pay down first.
According to a report on National Public Radio’s website, there are two schools of thought on which debt consumers should attempt to lower first. Mathematically, it probably makes more sense for them to pay off the loan with the highest rate first. Doing so would reduce the amount they’re paying overall interest, and that’s money that can be contributed to paying down that debt or others. On the other hand, consumers can get a psychological boost from tackling the smallest debt balance and eliminating it altogether.
The report says that when a consumer wants to reduce debt, it’s usually wisest to take the first method, which makes more sense from a budgetary sense, especially if the debt that needs to be reduced is of a particularly large amount.
According to a report in the Washington Post, consumer savings – the part of American paychecks that goes unspent – rose to 4 percent in May, indicating that consumers are successfully reducing debt and putting more money away.