Comments on: Reader Poll: Smallest Balance or Highest Interest Rate?

By: SJean

SJean — Tue, 31 Jul 2007 17:45:20 +0000

Generally highest interest rate, but if I had a small debt at a lower percent, I’d probably just pay it off for simplicity’s sake.

By: Reader Poll: The Results (Smallest Balance Or Highest Interest Rate)

Reader Poll: The Results (Smallest Balance Or Highest Interest Rate) — Tue, 31 Jul 2007 12:57:06 +0000

[...] In a recently poll, I asked readers to vote for the best method for reducing debt. [...]

By: James

James — Mon, 30 Jul 2007 17:10:02 +0000

One other comment I had –
I voted for the “higher interest rate”, but one thing I do to see progress is that in my personal net worth spreadsheet, I maintain the amount of interest paid in a given month. So, I can see that as I pay off higher interest rate debt, my interest paid per month continues to decrease.

By: Chief Family Officer

Chief Family Officer — Sat, 28 Jul 2007 03:23:20 +0000

Wow, 140 votes and it’s pretty much even! I went with lowest balance first, though if the balances were close, I’d actually choose the one with the higher rate. There’s just something so gratifying about paying off a debt!

By: ben

ben — Sat, 28 Jul 2007 01:11:35 +0000

I don’t really think the lowest vs interest is really the issue. The debt snowball is for people in debt trouble that really need to make a fundamental change in their lives. That means living on the bare minimum, selling belongings that are too expensive for their income, and putting every extra dollar towards their debt. In this scenario differences in interest rates really don’t matter very much. Its small but there is also the risk associated with open accounts, late fees, creditor errors, hidden charges etc…

By: tlange

tlange — Fri, 27 Jul 2007 03:32:28 +0000

I like the lowest balance method because I agree with Dave regarding the need for motivation in the process along with his observation that personal finance is 80% behavior.

For me personally, I am getting ready to sell some stocks that I recently inherited to pay off a large chunk of my debt (58%) and then I will only have one credit card remaining to pay off and that will probably go fast because of being able to add the other payments to this one.

By: Demeter

Demeter — Fri, 27 Jul 2007 02:17:00 +0000

I used this calculator:

http://www.whatsthecost.com/snowball.aspx?country=us

(And you can choose your currency on the right-hand side, if you’re not American!)

Since my debts vary widely in amount but only a by few points in rate, I’m one of those where it doesn’t really matter. Like I said, it only works out to about $120 doing it by balance rather than rate for me.

However, I do “hybrid” a little bit – I try to send in at least a few dollars more than the minimum amount to all of my debts, because I know that “looks good” to them and helps you out. I just mostly commit to the smallest-balance method.

By: Engineer

Engineer — Fri, 27 Jul 2007 02:04:14 +0000

In general, get rid of the high-interest debt first. If you need continuing motivation, track the improvement in your financial picture, rather than the number of debts you have. I would use a spreadsheet to track the amount I owed, and the best improvement would be obtained by paying off the highest-interest rate debt first, power of compounding, etc.

However, if you have a lot of debtors there is something to be said for paying the smallest balance, if it’s really small and you can knock it off with a single payment. Just so you don’t have to think about it anymore.

By: Brad

Brad — Thu, 26 Jul 2007 23:58:37 +0000

I voted for highest interest rate first (I’m a numbers guy). Your scenario was that we had to pick only one method. Absent details of the size and number of debts and their interest rates, I would choose highest interest first.

If there was an option for some combination of the two methods I would have probably voted for that. If the smallest debts can be knocked off quickly and remove a couple bills to worry about, I might tackle them first despite being lower interest – especially if there’s not a big difference in rates. But if the difference is knocking one off in 18 months instead of two years, I would go with higher interest rate first. Other factors may be freeing up more cash flow (i.e. size of minimum payments), how my wife feels about it, etc.

By: SingleGuyMoney

SingleGuyMoney — Thu, 26 Jul 2007 22:55:29 +0000

As someone who is currently working to pay off debt, I felt the most sense of accomplishment when I paid off my smaller debts first. In my case though, my smaller balances just happened to have the highest interest rates so it worked out well for me.