Pay high interest accounts off first
Because the cost of your debt is tied to the interest rate you are paying on the money borrowed, the best way to save money on debt repayment is to pay the one that costs you the most off first. If you have several different sources of debt, the best way to save is to prioritize them, determine which you are going to aggressively pay down first, based on the interest rate.
For example, if you have a student loan that you owe $5000, and have an interest rate of 4%; a car loan that you have $11,000 and have an interest rate of 5.125%, a credit card you owe $4,500 and pay 22%, your priorities should be clear. The one you want to pay off first is the credit card, because it is the one that is costing you the most each month. By paying that one off first, you are saving yourself from spending 16% or more in interest each month.
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Let's look at this with some more numbers to get an idea of the actual savings this can mean for you:
If you have high interest accounts, that you are paying a large amount just to cover the interest each month, it would be wise to reduce the principle on that as fast as possible in order to reduce the amount of interest you owe. If you owed $20 at 22% interest, and you have another account where you owed $20,000 at 10% interest, paying down the 20,000 account might be wiser because the amount at 22% is so small, but dollar for dollar, it is wise to pay off the dollars that are costing you the most first.
Each dollar you have borrowed costs you something. So, rather than looking at which debt would be easiest to eliminate first, instead, look at which dollars you have borrowed have the highest price tag on them. Nine times out of ten this is going to be money spent on a credit card. While many people have significant debt from car loans, home loans, student loans, etc. the debt that costs these people the most, and makes it most difficult to save is the debt attached to credit cards. A car loan, even for someone with terrible credit, is typically under or around 7% (obviously this varies based on where interest rates are at), but a credit card is almost always a minimum of 13% and is typically a lot closer to 20%+.
As you pay off a high interest debt, start saving the money you were spending on it, or apply it to the next debt with high interest to increase your savings even further. While it may take a few years to realize a large savings, every time you pay extra on a high interest debt, you are reducing the amount of interest you will owe, which saves you money and helps you to put it towards your cash reserve.
