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The snowball method is nice in that it frees up monthly cash flow due to having to pay fewer minimum payments. In these situations, it can certainly be good. B
by blastb 10y ago
The snowball method is nice in that it frees up monthly cash flow due to having to pay fewer minimum payments. In these situations, it can certainly be good.
But in order to minimize payments overall, assuming you have no cash flow issues and self discipline, it's financially optimal to pay off your highest interest debt first (the avalanche method). I'm guessing it might feel psychologically better to pay off smaller debts as each of those paid off is a win, but it's financially irresponsible to recommend the snowball method to everyone.
- humblebuck 10y agoThanks for the feedback, when I originally wrote this I actually detailed the stack method (same as avalanche). From my perspective it doesn't matter if you pay off a $100 credit card, but have $14,900 left in debt. You haven't really improved your situation. But after reading the results of the Harvard study I had to change the whole step. It turns out the psychological impact of seeing the size of the reduction on your smallest debt balance had staying power and kept people paying down debt. So I agree it's the most logical to pay the stack/avalanche method, but unfortunately we're all just a bunch of moist robots who don't always follow logic. Really appreciate the concern though, I was on your side before I ran into the study!