Interested In Interest

Even though it would make sense to look at interest rates, those aren't the determining factor in a debt snowball.

QUESTION: Beverly and her husband have $10,000 in credit card debt. They have a $217,000 mortgage and a $60,000 student loan. He wants to pay the student loan off last because of the low interest rate, but Dave stops her cold.

ANSWER: Interest rates have nothing to do with the debt snowball. Pay minimum payments on everything but the little debt, and attack that one with a vengeance. When it’s gone, take that payment amount and attack the next one. Then attack the next. Your last loan to pay off will be the student loan. Not because of the interest rate, but the balance. This is more like weight loss than mathematics. When you go on a diet and lose weight, you’ll stay on the diet. Debt is the same way. When you see that you’re paying it off, you’ll stick with the plan.