I too have only large debts. So progress month to month seems incremental and it will be 20 more months until I see a debt be terminated.

There are two ways to motivate yourself here:

1) Define and learn to feel success in just staying in your budget and executing your plan. Every month is a success, in other words, because every month you kill a chunk of that debt.

2) You can subdivide the debt into various parts. For example, if you owe $7000, divide it into chunks large enough to be paid off in three months. So if you put $600 on it, divide the debt into 7000/1800 or four chunks of $1800.

Make a chart of the debt with the four chunks sectioned out in black outline.

Mentally or phusically celebrate every three months when you kill one of those chunks.

In my case, the chunks are close to $1000 and I kill one every 3 months.

I hope this perspective helps.

My only problem with the debt snowball is that you knock off the first debt–GREAT! But then it takes longer and longer to knock out succeeding debts. You could easily lose motivation and enthusiasm mid-train, whereas if you knock out the highest balance first, each subsequent one goes away a lot faster.

We just made the last payment on a debt that started at $3800, at 30% interest. Now we’re starting on a $3000 debt at 17% interest. When we finish it, we’ll tackle the (currently) $2100 debt at 10% interest.

Yes, we could have paid off that $2100 debt more quickly – but the difference in payoff time wasn’t big enough to be worth the TRIPLE interest rate to us. (We got a much higher “minimum payment” added to our snowball this way, as well, due to the higher interest rate!) On the other hand, if we had tried to pay off that $3800 card before getting rid of the little $500 and $200 store cards, we never would have felt like we were making progress in the early days!

So yes, I like the Debt Deluge – BUT I wouldn’t limit myself to drawing a line “in the middle” of the debt list. I would instead group the debts by balance into however many groups make sense based on the balance distribution. Specifically, if it were me, I would pay off the $5,000 debt before the $12,000 in the scenario you provided. $1700 to $12000 is a BIG jump in the amount of time between payoffs, and it would be easy to get discouraged looking at that situation… But I’d still get that $12k one out of the way before touching the $10k!

P.S. I definitely recommend subscribing to this blog’s feeds, they are a wealth of information.

As a math major, I am really bothered by people’s paying off low interest debt first because of “psychology”. I don’t like wasting money, and to me any interest that is higher than what I can get on fixed income (!) investments is wasted money. I also don’t separate money into buckets – debt vs savings. To me it is a single pool of money – savings, investments and debt – some positive and some negatives, and the idea is to maximize the total not individual pieces.

So instead of following a plan that results in wasted money, why not change one’s way of thinking? Instead of looking at each debt as individual entity, why not add up the numbers every month? This way, you can get a real satisfaction of your total debt load decreasing along with your monthly payments. Yes in the example above, the difference is not that large. But what if your largest debt had been at 29%? Then by the time you finish paying off small low interest rate debts, your large debt could grow by more than what you’d have paid off.

There are other considerations too – if 3.9% expires and may go up – pay it off before the rate expires.

Another thing – why not just get a 0% credit card and transfer everything there? Then you could comfortably pay the total for a year. A month before 0% expires you could transfer to another 0% and repeat. Needless to say you shouldn’t add to your balance in the meantime. Shuffling 0% balances, by the way, is what my friend did when she needed to pay for her mother’s cancer medication. Gave her mother 2 extra years of good quality life yet never paid a penny in interest. This friend is a millionaire now, by the way.

I think that both Flexo’s view and Mr. Ramsey’s view a only partial looks at the same situation. While it may be a psychological advantage to list debt in order of balance or interest rate, there is one important aspect that both theories fail to address: the overall effect of interest on a balance. By taking an extended look at one’s debt, they can see which debts are truly costing them more in terms of compounding interest as time goes on. Sometimes a mid-level balance combined with a mid-level interest rate will end up incurring higher interest charges going forward than any of the other debt obligations depending on the situations.

I think it is too simple to pay down debt based on surface numbers, such as balance or interest rate, even though it is easier to see the effects of the effort. People would be better off eliminating the debt which is costing the most in additional interest first, which will minimize the the additional interest charges being applied going forward.

In combination with DR’s plan we do the 0% balance transfer option on the cards we have to reduce the interest rate instead of getting a $100 finance charge and having a minimum payment of $115 on the card does nothing to reduce the balance.