What's The Reason For The Debt Snowball?
Mike asks why he should pay his debts off smallest to largest in the debt snowball. Dave explains.
QUESTION: Mike on Twitter asks why he should pay his debts off smallest to largest in the debt snowball. Dave explains.
ANSWER: Really good question. A lot of people wonder that when I first bring it up. When I first started this, I used to tell people to pay off the highest interest rate first because that made sense mathematically. But then I figured out that if people did math, they wouldn't have credit card debt. This is not a math problem. This is a behavior problem. Personal finance is 80% behavior. It's only 20% head knowledge. Your probability to become wealthy has more to do with your behavior than it does your sophistication or your academic underpinnings.
The reason the debt snowball goes smallest debt to largest debt, even though that's mathematically incorrect, is that modifying your behavior and inspiring you to head in the right direction is more important than the math. The way that I get people out of debt actually works, and some of these other theories don't. I'm not a theory guy; I'm a practical application guy.
You are absolutely going to get out of debt when you do it this way—every single time that you follow the stuff we teach. When you pay off that smallest debt, it gives you a success, and you think you can make it. Then, when you pay off the next debt, you realize this is going to work, and you pay off the next debt. You move right through the process.