Why Highest Interest Rates Don't Matter When You're Paying Off Debt!

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[williekenk]

The other thing that helped us with the snowball method was the initial sense of starting to feel relief with the snowballed payments. Being able to pause for an emergency with the amount you are paying extra on various debts.

I never had to do this, but towards the end of our snowball we were paying $2000 per a month on a $400 minimum payment. It was a major piece of mind knowing that if we had a car or house issues, we had the emergency fund + $1600 if we really needed to pause. If we'd done largest amount first, we wouldn't have had the growing peace of mind for the growing amount we had to go towards and actual emergency. There is real value in being able to roll those payments over into other payments as quickly as possible. It just creates potential for flexibility and helps you start to envision how flexible life can be once you are out of debt.

[TerriSloan-gv]

I’m going the opposite-I feel that once a person really gets tired of the debt shackles then the highest is easier to feel good about it-

[cheapcookies]

It's 100% behavior that puts you in the hole in the first place.

[markspark]

Of course interest rates matter. Especially in this case. It’s just in general people don’t have the discipline to handle their money, and that’s why their general advice is to do the small to largest.

[Cornholio]

George briefly mentioned it, but it should be emphasized that as you pay off the smaller debts, you create a higher cash flow that can immediately be applied to the other debts.

[matthewcrowley]

I know someone who did what I call a hybrid approach successfully - they started the snowball method, got a couple paid off quickly, then decided they had the discipline to do the avalanche method and successfully stuck to it. Not saying everyone can do it, but I wonder how many people have done this kind of mixed/hybrid approach.

[kobefurness]

I get the snowball method in terms of behavior, but mathematically speaking it is more beneficial to pay off high interest debt first.

[JA-zhxi]

I truly hope rates go through the roof! I have no debt and high rates reward financial responsibility.

[too-da-loo]

It depends on the amounts. If I had two debt, 7k at 10% and 12k at 24%. Then I am paying off the 12k first. I get the emotional side to it all, but seeing that 24% interest being applied each month can have a negative effect too.

[tcgtpl]

The quicker you pay off debt, the less of a difference there is between the debt avalanche and the debt snowball methods.

[DEBTFREEMIKE]

I would be paying the highest interest ones down first, while they’re at zero percent, before the payments resume. Then you will at least have the highest interest ones paid down. Then, you can snowball it.

[captivated]

I love her voice! It’s calming and has strength at the same time.

[John.]

What about telling him about ending his spending habits?

[randomutubr]

Definitely pay off the high interest one in this case. I get it the behavior aspect of it, but this guy obviously gets it and is going to pay these off. He might not have had the discipline in the past, but he grew and does now.

[AmandaRogersarock]

So similar I'd pay the $6k. I think they took the question and interpreted his actual answer wrong.

If the debts were far different $1k vs say $20k maybe he would feel the win, but I feel the caller would feel a similar win with the $4k and the $6k. Just IMO I would pay the $6k.

[gafee]

Glad to see that we're finally acknowledging that some people can manage debt well. I graduated with an engineering degree, and paid off my debts and invested as the math would tell you: highest interest first, always contribute to your retirement - and it works. I'm a numbers person and student loans were always a calculated investment. Why would paying off the debt be any different? I'm officially a millionaire in my mid 30s - single income, never married. Doing things the mathematical way is a perfectly fine guide.

[JESUSandPoker]

In this specific case, go for the 6k first

[inthebooks]

He should honestly pay the higher rate one first. Everyone is different

[AG-kbyb]

Because Dave said so and they do not want to end up unemployed.

[cash]

Something that gets overlooked in the debt Snow ball method (which my wife and I are using to great success) which Dave himself has said before is Set Up Minimum Payments on all the debts, then list them smallest to largest regardless of interest and attack the smallest. I would assume minimum payments would at least shore up the interest from pilling up while you work weekends flipping burgers and attacking the smallest debt.