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Ask Dave

Should The Higher Interest Rate Go First?

How much does interest rate matter when you are working a debt snowball?

QUESTION: Rob has a student loan and a personal loan to a family member. The college loan is $15,000, and the one to the family member is $12,000. Should he pay off the one with interest rate first? Dave instructs Rob on which order he would pay them off and why.

ANSWER: I don’t look at things only from the perspective of interest. I look at personal finance as being personal as much as it is finance. I want you to pay off the smallest debt first, and I don’t want you to owe money to a family member, so both those arguments lead me to tell you to pay off the family member first, regardless of the fact that the school loan has an interest rate on it. Get that paid off while making minimum payments on the other one. I want this relationship to be restored, and you’ve discovered that the borrower is slave to the lender when you owe money to a family member. Thanksgiving dinner tastes different when you eat with someone to whom you owe money.