Bible Money Matters

Christian personal finance

Menu
    • About
    • Archives
    • Contact
    • Close
  • Making Money
      • Popular Articles

        • 50 Ways To Make Money: Maximizing, Creating And Increasing Your Income
        • 10 Weird And Unconventional Ways To Make Money
        • Making Money With A Blog (e-Book)
        • 10 Places To Sell Or Trade Your Unused (Or Broken) Electronics
        • Ways To Make Extra Money Series: 20 More Income Generating Ideas From Our Readers
        • Making Side Income Can Help Blunt The Impact Of Becoming A One Income Family
        • Earn Cash Back With Discover it® Credit Card
      • Recent Articles – Making Money

        • Best Sites Like Fiverr To Make Money As A Freelancer
        • 13 Of The Best Independent Contractor Jobs
        • 25 Of The Best Gig Economy Jobs
        • How To Make Money Blogging: Turn A Blog Into A Business
      • Categories

        • Making Money
        • Investing
        • Retirement
        • Jobs & Work LIfe
        • Money
        • Income
    • Close
  • Saving Money
      • Popular Articles

        • 50 Easy Ways To Save Money Every Month
        • 10 Weird And Unconventional Ways To Save Money
        • 10 Practical Ways To Save Money And Increase Your Net Worth
        • How To Save Money On Just About All Of Your Regular Monthly Bills
        • Ways To Watch TV Without Paying An Arm And A Leg For Cable TV
        • Save Money On Your Hospital Bill - Just By Asking
      • Recent Articles – Saving Money

        • How To Save $100k In 7 Practical Steps
        • Stairs App Review: Save And Invest To Earn 4-6% Interest
        • Honey Review: Save Money Automatically When You Shop Online
        • 9 Convincing Reasons Why You Need An Emergency Fund
      • Categories

        • Saving Money
        • Frugality
        • Planning
        • Finance
        • Saving For Retirement
        • Savings Accounts
    • Close
  • Banking
      • Best Rates For 2019

        • Best Credit Cards
        • Best Savings Accounts
        • Best Mortgage Rates
        • Best CD Rates
        • Best Brokerages
        • Free Credit Scores
      • Recent Reviews

        • TradeStation Review: Commission Free Stock And ETF Trades
        • Firstrade Review: Commission Free Trades on Stocks, Crypto, And Options
        • Cadre Real Estate Investing Review: Commercial Real Estate Investing
        • Axos Self Directed Trading Review: Invest, Trade Stocks For Free
      • Categories

        • Bank & Software Reviews
        • Investing
        • Credit
        • Banking
        • Mortgage
        • Insurance
        • Family Budget
    • Close
  • Recommended
  • Video
    • Close

Which Method Is Best To Pay Off Debt: Lowest Balance To Highest Or Highest Interest To Lowest

By Melissa 10 Comments - The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 10, 2014.

Share4
Pin30
Tweet21
Share1
56 Shares

There is frequently a debate between financial gurus as to what method of debt repayment is best.

Lowest Balance to Highest Balance

Of course, Dave Ramsey advocates the debt snowball method where you list your debts with the lowest balance to the highest balance with no concern for what the interest rates are.  Then, you pay the minimum payment on every debt except the one with the lowest balance.  The one with the lowest balance is the one on which you apply as much money as you can.  Once that one is paid off, you take the payment that used to be applied to the debt you just paid off to your next debt with the next lowest balance.  As this cycle continues, the amount you apply on the next card in line increases as you pay off your debts one by one, which is how your debt snowball becomes larger and more formidable.

debt payment methods

Critics argue that Dave Ramsey’s approach is not cost effective—you pay more in interest by following the debt snowball method.  Dave Ramsey argues that personal finance is not only about math, it is about psychology as well, and the psychological boost of seeing at least one of your debts disappear quickly helps greatly in debt repayment.  There is real motivation from seeing immediate results.

Highest Interest Rate to Lowest Interest Rate

On the other hand, financial gurus argue that the most effective way to pay off debt is by paying the debt with the highest interest rate first, no matter how large or small that debt is.  By paying off the debt with the highest interest rate, you are freeing yourself of a debt that takes more and more of your hard earned money simply for interest, rather than principal.

Recently, the April edition of Kiplinger’s included an essay by Robert Frick, senior editor at Kiplinger’s.  He argues that we should pay off our cards based on the highest interest rate, but we don’t because “our brains aren’t adept at quickly calculating” the financial implications of paying the debt with the lowest balance first.  He explains, “Think of $10,000 in credit card debt with an interest rate at the national average of 14.9%.  You want to pay off that debt aggressively, so you figure you’ll pay 4% of the balance,or $400, on the card each month.  Quick, how long will it take to pay it off?  You may think, Twenty-five monthly payments would be $10,000 then add in some interest.  The debt will disappear in a couple of years.  In fact, you’ll be paying for 31 months and will rack up more than $2,400 in interest.”

Pick a Plan and Stick with It

Both parties make compelling points, but the argument reminds me a lot of weight loss.  One person may advocate a low-carb diet while another may advocate a structured diet plan like Weight Watchers.  Actually, if you stick to your weight loss plan, either plan will give you results because the bottom line is that you are consuming less than you previously did because you are following a plan.

Don’t struggle with which debt repayment plan is better—paying off the lowest debt first or paying off the highest interest rate first.  The important decision here is to decide to pay off debt and make a plan for how you will tackle that debt.

My husband and I are taking a hybrid approach.  We are paying down our debt first by category.  Our priority is to first pay off all credit card debt before moving on to student loan debt, even though my student loan has a lower overall balance than one of our credit cards.  We have been paying down the credit cards based on Dave Ramsey’s suggestion of paying down the lowest cards first.  Doing this gave us an immediate shot of energy when we paid off the credit card with the lowest balance in the first month of becoming gazelle intense.  Yet, following this method, we are saving the largest credit card, which is also the credit card with the highest interest rate, for last.  Are we paying more in interest?  Yes, but I stay motivated by seeing debt disappear.

When paying down debt, determine which strategy works best for you and then stick with the plan.  Don’t concern yourself with how much interest you are paying, unless that motivates you to pay down debt more quickly.  Instead, just focus on how you can pay down the debt, in the order that works for you, as fast as possible.

Related Posts

  • Which Debt Should You Pay Off First?

    Ordering your debts can help you create a plan that will allow you to get out of debt faster, saving money in the process.

  • Should You Pay Off Debt Or Save For Retirement?

    If you are in debt and behind in your retirement savings, where do you stick your cash? Do you hold off on contributing to retirement…

  • ReadyForZero Review: A Program To Help You Pay Down Your Debt

    ReadyForZero is a valuable tool for those who want to get out of debt, and best of all, it is free! Here is a full…

Share4
Pin30
Tweet21
Share1
56 Shares
Last Edited: 10th February 2014 The content of biblemoneymatters.com is for general information purposes only and does not constitute professional advice. Visitors to biblemoneymatters.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.

This article is about: Get Out of Debt

About Melissa

Melissa, a mom to three (ages 15, 10, and 9), blogs at Mom's Plans where she writes about homeschooling, health eating, frugal living, and paying down debt. She works as a freelance writer and virtual assistant.

Comments

    Share Your Thoughts: Cancel reply

  1. Marc says

    The best advice I’ve heard for finding a balance there (highest interest with the lowest balance) is start with the debt you are paying the least principal on. For me it turned out to be my highest interest rate.

    Reply
  2. Peter Anderson says

    When we were paying off debt I believe we did a hybrid approach of sorts where we would be paying off a couple of smaller $1000 debts first, and then moving on to the larger dollar debts – which we did in order of highest interest first.. It worked well for us – giving us the best of both worlds.

    Reply
  3. Jenna, Adaptu Community Manager says

    I think I would do highest interest rate first, just to save money overall. Psyching yourself up is all good and well, but in the end the dollars saved win out for me.

    Reply
  4. Slick says

    I prefer highest interest rate first. I enjoy calculating how much interest is coming out of my pocket just by waking up in the morning. At one point it was $7 in interest per day! Now it’s down to about $2.

    It’s a good feeling knowing the banks aren’t making as much off me…

    Reply
  5. Jeff says

    For those number crunchers out there – you could use Undebt.it to manage your debts. You can use either the snowball or avalache (highest interest) method.

    Reply
  6. Eric J. Nisall - DollarVersity says

    What I do is look at the statements and put the most money toward the debt which incurs the highest amount of interest. This way, I’m not only paying down debt, but also preventing more interest from accumulating and adding to the balances. Of course, I don’t have a problem with not paying off a balance completely right away. I’m much more satisfied knowing that I’m saving on future interest charges but it’s not a plan for everyone.

    Reply
    • Slick says

      I’ve been considering this, but this would have me paying on my mortgage first…

      Reply
      • Eric J. Nisall says

        That’s an exclusion. Revolving debt is what it’s meant for–basically credit cards. The reason being is that only revolving debt keeps compounding new interest onto the balance to come up with a new amount. All other kinds are fixed interest amounts. Plus, when you can get student loan and mortgage at generally low rates combined with the tax deduction they usually provide, it’s best to keep those at their regular payments and concentrate on the rest that don’t offer you any benefit.

        Reply
  7. Brent Pittman says

    Good summary of the two camps. I’m in the debt snowball camp, but I’d be willing for a client to fudge a bit if they were sticking to their plan. The larger debts like student loans are almost like mortgages and good idea to pay off all unsecured debt first.

    Reply
  8. Tami @ This Mom's Delight says

    Hubby and I are in disagreement on this one. I think we should tackle the higher interest rates first, but he prefers to pay off lower balances first.

    I will admit that his makes some sense since it’s a card we can eliminate altogether once it’s paid in full.

    Reply
Previous Post: Trying To Buy A New House When Your Current Home Is Underwater
Next Post: How To Rollover Your 401(k) To A Roth IRA
Discover Investment Platforms

Popular Posts

  • 21 Easy Ways To Earn Free Amazon Gift Cards
  • 10 Best Free Tax Filing Services And Software Online
  • 21 Apps That Pay You Real Money Fast
  • 17 TV Apps And Live TV Streaming Services To Watch TV Free
  • 30 Legit Online Jobs That Pay Well
  • 37 Easy Ways To Get Free Gift Cards
  • How To Get Free Stock
  • 40 Easy Ways To Get Free Money Fast
  • 21 Places To Read Free Books Online
  • 24 Legit Online Jobs
  • 17 Best Work From Home Jobs: A List Of Legit Online Jobs That Pay Well

Recent Posts

  • How To Save $100k In 7 Practical Steps
  • How to Save Money When Remodeling A Home
  • How To Hire A Contractor For Your Remodeling Project
  • Remembering 9/11 Years Later: Where Were You On That Fateful Day?
  • TradeStation Review: Commission Free Stock And ETF Trades
  • Firstrade Review: Commission Free Trades on Stocks, Crypto, And Options
  • Cadre Real Estate Investing Review: Commercial Real Estate Investing
  • Best Sites Like Fiverr To Make Money As A Freelancer
  • Axos Self Directed Trading Review: Invest, Trade Stocks For Free
  • 30 Quotes About Easter And Resurrection: He Is Risen!

Disclaimer

The information contained in BibleMoneyMatters.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation.

In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.

Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.

Amazon and the Amazon logo are trademarks of Amazon.com, Inc. or its affiliates.

We respect your privacy: Privacy Policy.

Thanks for visiting!

Bible Money Matters - Seen On These Sites and more..
Bible Money Matters is a personal finance, entrepreneurship and investing community. Give more, save more and live more.

Copyright © 2023 · Bible Money Matters | Sitemap | Advertise | Privacy Policy