The Debt Snowball

Most of the advice around paying down multiple debts centers on paying more toward the higher interest rate debt first. Mathematically this makes the most sense because the longer you have high interest debt, the more you pay to get rid of it. The reality, however, is that finances (debt in particular) can be more emotional and psychological than rational and mathematical.

As debt numbers remain high, it may be time to look at a different approach to managing debt. Ignore interest rates.

Far too often, people get caught up in worrying about what their interest rates are. They switch cards, do balance transfers and other tactics in order to find a lower interest rate. They forget about the most important thing. . . the balance. Instead of paying down the credit card or the debt with the higher balance, try paying down the debt with the smaller balance first. This is a psychological approach. The shear feeling of excitement from paying off a debt can keep you motivated to tackle the next one. You get a sense of accomplishment and gratification much sooner that if you tried to pay off several debts at once.

This debt snowball seems to work very well for “task driven” individuals. If you get excitement from checking things off of a to-do list then the debt snowball approach may be for you.

This post originally appeared here.

Matthew B. Brock, CFP®
Senior Partner, Owner
Divergent Planning, LLC

Securities and Investment Advisory Services Offered through H. Beck, Inc., Member FINRA,SIPC.H. Beck Inc. and Divergent Planning are not affiliated.