Debt Snowball Method: Highest Interest Vs Lowest Balance

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Are you looking to pay your debt off by using the debt snowball method?

In the personal finance world there are differing opinions as to which way to do this. It’s the great debate.

Do you pay off the lowest balance first or start with the lowest interest rate?

Personally, I believe that the debt snowball method you choose completely depends on your specific situation and attitude about your debt.

If you need that extra push to stay motivated, it might be better for you to pay the debt with the lowest balance first. Psychologically, you will respond to and are more motivated by getting the quick wins along the way.

It’s one of the reasons they say you should put your goals on paper instead of leaving them in your head. Each time you accomplish something on your list you get a rush and are motivated to quickly continue obliterating the next debt on your list.

I can tell you from experience that every single time my wife and I payed off another debt we felt like throwing the largest block party!

Getting the quick wins by paying the lowest balance first provides quicker confirmation that your plan is working. You will get the same boost by eliminating your debt by paying the highest interest rate too, however, the key difference is that this method may cause a longer period of time to go by before you are able to achieveΒ  a victory.

To me it’s like living without the sun in total darkness. Eventually, not seeing the sun is going to get to you just like taking longer to pay off each debt can easily affect your resolve. Your attempt may seem like a never-ending journey and can possibly lead you to believe it’s not worth continuing.

The motivational factor should not be underestimated when deciding which to use. If your mind is made up, and you want to pay the lowest interest rate first just realize, you will have a different battle. You are going to need a double dose of motivation to work on what is likely to also have a bigger balance!

Regardless of which method you use you will still have those tough debts that seem like they are taking an eternity to pay off. It’s a matter of preference really. Would you rather manage the hard part (bigger debt) after you’ve gained some experience with your new lifestyle, or in the beginning when you’re just learning how to change your habits?

The benefit of paying the highest interest rate first is obvious. You will pay significantly less in interest, but may sacrifice a little motivation in the process. I prefer getting comfortable with my new plan before tackling the larger debts. (That’s why we payed the lowest balances off first, but paying the highest interest rate doesn’t always mean it’s a large debt.)

I wrote a post that will show you a process to use to help you stay motivated while attacking the larger debts. It is something that we struggled with as we reached the end of our snowball. It truly felt like it was never going to end. When you are in that place, it doesn’t take much for you to feel defeated.

You are going to have things come at you along the way that will throw you off course. Stay strong!

Staying Motivated While Paying Off Your Larger Debts was my attempt to get you to break your larger debts into smaller sections on paper so that you would get that same motivational boost a little more often. It may not work for everyone but I am quite confident that it couldn’t hurt to give it a try. There’s still no replacement for seeing a real balance hit zero though!

The big news is that you’ve made the decision to pay off your debt; CONGRATULATIONS!

It’ll be one of the best decisions you have ever made for you and your family! No matter which way you choose, the most important thing is that you JUST DO IT! Say goodbye to debt forever to increase your happiness and enjoy a different quality of living! It truly is worth the effort!

Live debt free!

When you do, come back here and tell us how it is on my popular series called Debt Fee News from a Debt Free Reader! Join 18 others that have completed the questionnaire I created in hopes that it would inspire others!

About Brad Chaffee

21 Responses to “Debt Snowball Method: Highest Interest Vs Lowest Balance”

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  1. beth says:

    Hi Brad,
    Thanks for the post on this! My debt included 8 credit cards. First I paid off 4 of them with balances 1,000 or less. Now I have 4 left–the big balances and I’m using the debt snowball approach. I still have a ways to go but I’m really focused. My dream goal is two years to pay the remaining 32K. It’s a big challenge but I want to be free!!! I just posted my first quarterly update report on my website where I am staying accountable! I have really pared down EVERYTHING!

    • Brad Chaffee says:

      Congratulations Beth! It sounds like you are fired up and ready for major change! Good luck and I hope to hear from you along the way as to how you are doing. πŸ˜€

      • beth says:

        Thank you Brad! I sure will. I look forward to reading your post on staying motivated while attacking the larger debts!

        • Brad Chaffee says:

          Awesome. Just know that it’s not a secret just good old fashioned “setting goals” techniques that keep you going through the tough part. I created the post after struggling on our journey with Sallie Mae! LOL

  2. I always paid the one with the highest interest rate. Just didn’t make sense even for a small win πŸ™‚

    • Brad Chaffee says:

      Yeah I can certainly see your reasoning for doing it that way. For us though we would of started right out of the gate with $8,000 to pay off before we reached our first payoff. Not sure how we would of stayed motivated enough to make it happen fast had we done it the other way. Until we reached the Student Loans we were renewed with excitement almost monthly because we were knocking them out pretty fast. I’ve known a few people that fizzled out trying to knock out the biggest debts first.

      Like I said the important thing is not how you do it but that you do it. Either way is fine in my book! πŸ˜€

  3. Kaye says:

    We are using the snowball method (lowest balances first). I know it makes more mathematical sense to pay the largest rates first, but it was my emotions that got me into this mess (emotional spending) so I figure my emotions will have to work to get me out!

    We’ve paid off $19,887.14 since 10/14/09 and have almost $36,000 left (not including the mortgage). I feel like a moron for getting in that predicament, but can’t wait to be FREE!

    And the frugal choices we are now making have gotten us through TWO different layoffs in that same timeframe, so these are LIFE SKILLS! =)

    • Brad Chaffee says:

      That’s right Kaye it’s a package deal! It takes a commitment to tackle the complete financial situation as opposed to just paying down a balance. Congratulations on how much you have paid off, that is EXCELLENT! Keep up the great work and that $36,000 won’t stand a chance! πŸ˜€

  4. We’re in the ‘pay the smallest debts first’ camp, but I agree with you that whatever will motivate someone the most is the way to go.

  5. Lvnv Funding says:

    I prefer the debt snowball idea, particularly just how Ramsey suggests accomplishing it. If you’re talking to the masses like Ramsay, one thing everybody lacks is definitely enthusiasm. A lot of people must be driven to keep proceeding, so focus on the tiniest personal debt and pay it off first.

    • Brad Chaffee says:

      It is definitely very easy to get knocked off track and lose the ferocity you one had to pay off what seems to be a never-ending road! When paying the smaller balance first it’s important to be gazelle intense.

  6. Nate Hall says:

    It is a rewarding feeling to get debt paid off and psychologically, very motivating. I think the Snowball approach works for some because it is more doable to pay off the smaller debts at a time, even though the interest on the larger stuff is hard to think about :-).

  7. Red says:

    I understand you obviously have a preference toward paying off small balances first, but you didn’t even mention the benefit of paying off higher interest first, you only pointed out the negative side of it. If you pay off your debt with the highest interest rate first, it is likely to take longer, yes. (Though that’s not always the case because you’re highest interest debt doesn’t have to be your largest balance.) But you’ll pay less money in the long run.

    I encourage people to look at how much they’ll save in interest by paying the highest interest rates first. If they’re okay with losing that money and they need the small victories, by all means, they should pay lowest balance first. But you should present both sides of the argument.

    • Brad Chaffee says:

      Yeah you got me. I am seriously biased when it comes to the debt snowball. I admit it. πŸ˜€

      To me the only benefit to paying it off using the highest interest rate is that you will pay less interest. My view on that is that most people that get into debt weren’t too worried about that when they ran up their debt so it doesn’t benefit them emotionally the way that paying a debt off completely much quicker does.

      I should of used a different title since I really didn’t present both sides equally. LOL The fact is that it would be hard for me to do that because they aren’t equals in my opinion. I know that’s hard core to the person doing math, but I am a firm believe that getting out of debt is more psychological than mathematical.

  8. Evan says:

    I have been using the debt snowball method. It feels good to get a few debts paid off. Also when budgets are tight, having that extra money freed up can help make thing go a little smoother.

    So far we have been on the debt snowball for 11 months, and have paid off 2 of our 5 debts. We started with over 49k in debt, and have now crossed over the halfway point. Should have our third debt paid off soon.

  9. Kellen says:

    I only have one major debt to pay off (student loan), but I keep myself motivated by estimating the interest that accrues every month. By my calculations, the last couple months, the interest on my loan was over $100 a month! Watching that number keeps me making payments as high as I can each month. I think that next month my interest will be under $100, then I will aim for under $90…. etc!

    I have 10 years to pay the debt off if I just pay the minimum, but it will still take me several years even paying extra. So, using the interest rate per month as a milestone gives me something that I can celebrate more often!

    • Brad Chaffee says:

      Kellen, that is an excellent way to stay motivated while paying off big debts!! I can just picture the goal of lowering your interest payment month to month becoming an obsession and one thing people have to be about paying off debt is obsessed! Great tip and thank you for sharing! πŸ˜€

  10. Kiki says:

    You did a great job at explaining both sides of the story!

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