The Consumer Web Site of the Week comes from Jim Ludwick, a financial planner with MainStreet Financial Planning in Odenton.
It’s called “What’s the Cost?” and the feature on the site that Ludwick recommends is “Snowballing.”
By snowballing, you’re repaying debts in the order that minimizes the amount of interest you’ll owe over time. That means paying off the debt charging you the highest interest rate.
Use the site's snowball calculator to figure out which of your debts you should pay off first and how much you should pay each month. Start by plugging in your debts and their interest rates into the snowball calculator. You also must put in the total amount you can afford to pay toward these debts each month. (The Web site is based in England, so you will have to click on the American flag to switch from pounds to dollars.)
The calculator will display how much you should apply toward each debt each month to save the most on interest. The whole process takes a few minutes. Ludwick says he used to spend an hour doing similar calculations on spreadsheets for clients.
Ludwick says he’s used the calculator for a couple who had $290,000 in student loan and credit card debt. They could afford $2,000 a month to put toward their debt, about $400 than the minimum payments required. The calculator figured it would take them until 2026 to pay off that huge amount. But by paying off the most expensive debt first as recommended by the calculator, the couple willl save about $60,000 in interest over those years, Ludwick says.
What's the Cost? suggests using the snowball method almost always is cheaper than a consolidation loan.
Of course, there are those who argue that you should pay off the debt with the lowest balance first. That way, you pay off a debt quicker, feel good about yourself and are more likely to continue paying off debt.
But math-wise that doesn’t make sense. You could end up paying more iin interest over time.
“Do you want to feel happier or make somebody else richer?” Ludwick says. “It’s a false send of happiness.”
Check out the site and calculator and let us know what you think.