There is always a lot of heated discussion on which is the best method to reduce debt: the classic highest interest snowball method:
1. Make a list of all your debts, ordering them from highest interest rate to lowest interest rate.
2. Set aside a specific amount of money that will go toward paying these debts each month.
3. From the amount you set aside, make the minimum payment on all debts. Whatever money is still left over goes toward the debt with the highest interest rate.
4. When you finish paying off the debt with the highest interest, continue the same method. You make the minimum payment on all debts, and all of the extra money goes toward paying down the debt with the now-highest interest. The payments made toward the first debt that was paid off get “snowballed” into the next-highest-interest-rate debt.
or the lowest balance snowball method:
Make a list of all your debts, ordering them from lowest balance to highest balance.
Set aside a specific amount of money that will go toward paying these debts each month.
From the amount you set aside, make the minimum payment on all debts. Whatever money is still left goes toward the debt with the lowest balance.
When you finish paying off the debt with the lowest balance, continue the same method. Make the minimum payment on all debts and then put all of the extra money toward paying down the debt with the now-lowest balance.
The truth is, the best method depends on how you view money.
First and foremost, the most important thing to remember is that debt reduction and should reduce your debt. While the classic snowball debt reduction method is the more rational method from a financial perspective since it means paying the least amount in interest charges, many people don’t view money in a rational manner. They instead view money from an emotional perspective.
Forcing someone to approach debt reduction from a rational perspective when they view money emotionally will likely mean that the person will fail in the ultimate goal of reducing their debt completely. The goal isn’t to reduce the debt in the most efficient way until you get frustrated and give up, but to reduce it in a way that ensures that it is all reduced. For many, this means approaching debt reduction in a slightly less efficient way, but keeps them motivated to reduce all of their debt.
In the end, one must choose the method that they believe is going to work best for them. There isn’t a “right” or “wrong” answer if the method ultimately frees you from the debt you have accumulated.
Jeffrey strain is a freelance author, his work has appeared at The Street.com and seekingalpha.com. In addition to having authored thousands of articles, Jeffrey is a former resident of Japan, former owner of Savingadvice.com and a professional digital nomad.
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