pay off debt
Some debts have higher interest rates. Some debts may be tax-advantaged. In the case of a mortgage, the tax advantages only matter if you itemize deductions on your tax return. In the case of student loans, they’re only tax-advantaged if you have income below a certain threshold.
Ramsey is known for being a proponent of attacking debt aggressively. He proposes one method that I think works for the vast majority of Americans. Yet, today I’ll argue that method isn’t necessarily the best way to combat debt for high earning medical professionals who are most concerned about their student loan debt.
To do this, you pay the minimum payment towards all of your debt, and then put any additional money towards your smallest debt first. When that is paid off, use that money plus what you are currently paying to pay off the next debt. With each debt being paid off, you’ll have increasingly larger cash flow to pay off the next debt.
The idea here is the opposite of the snowball method. Simply locate the highest interest rate debt you have. Take any additional money you have above your monthly minimum payments and start hammering away. The more you can throw at it, the larger the avalanche, and the sooner your debt will be gone.
We paid the minimum payment on all of our debt akin to the snowball method, but then we focused a concentrated high monthly payment on our student loans (our least favorite source of debt). Then, according to The 10% Rule, we limited our lifestyle creep and applied 90% of any additional bonuses, increases in pay, or surprise money towards our Snow Plow’s target.
If you know yourself and need the small “wins” to keep you going, the snowplow or snowball method may still be your friend. Regardless of which snowy debt pay down path you travel, the take home is to pay down your debt. Make a goal, write down a date, and chase after it!