How to Pay Off Debt

Snowball Is Better Than No Ball

How to Pay Off Debt
September 25, 2015

Personal finance experts love to argue about the best approach to shrinking your debt: paying off loans with the biggest balance first vs. tackling your highest-interest debt. This debate can get as heated as a Thanksgiving dinner where your relatives debate politics, religion or the winner on Dancing With The Stars.

Now comes new research that proves what the smart financial advisors have said all along: the best method is one you can stick with until you're debt-free.

The debate comes down to two mindsets, sort of like men being from Mars and women hailing from Venus. Rationalists claim the best way to pay off debts is to target extra cash at your highest-interest rate debt first, because that lowers your total interest payments and means you pay the least amount to get out of debt. Let's call that the "debt highball" approach.

The flip side, whose proponents include anti-debt guru Dave Ramsey, emphasizes motivation, counseling you to pay off your smallest debt balances first. This camp touts the emotional satisfaction that comes from seeing a balance of $0.00 on your Visa, and holds that the emotional boost keeps you motivated to pay off other debts. This is the "debt snowball" method. As millennial money expert Stefanie O'Connell puts it, "The argument for the debt snowball is that you will…start building momentum and it's more of this psychological boost to finishing your debt repayment journey."

Who's right? A new study says that they both are.

"The increased motivational benefits of small victories may make it beneficial to pay off debts from smallest to largest in some cases, ignoring interest rates," according to Alexander Brown and Joanna Lahey of Texas A&M University, in a research paper coming from the Journal of Marketing Research.

In other words, what works is what works FOR YOU. Imagine if John Lennon had written Whatever Gets You thru the Night as Whatever Gets You out of Debt. Whatever that is, this research suggests, "it's alright, it's alright."



If you are still struggling over what method to adopt, consider this: when you do the math, it may not add up to all that much. Imagine that you have debt on three credit cards: One charging 18.9 percent on a $5,000 balance; another at 15.9 percent on a $3,000 balance; and the third with a rate of 11.9 percent on $2,000. Paying the minimum means that you will spend more than 8 years and $17,600 on interest to get all those balances to zero.

Now let's say you comb through your budget and find you have $50 you can throw at one of those card balances each month. Where should it go? The rational camp would insist on targeting your highest-rate card. And they would be right — you would pay it all off in less than five years and cut your interest payments by more than $3,100.

Targeting your smallest balance first would take an additional three months, and save you nearly $2,600 in interest, for a total of $541 less.

I am not one to sneeze at saving more than $500, but you will only save that money if you can stick to your debt-reduction plan. If you get discouraged and quit, you will lose almost all of that time and money.

The thing to focus on here is the fact that, under either method, you are cutting your repayment time by more than half and saving thousands of dollars. Moreover, whenever your debt is paid off, you have another $3,000 a year to put toward your own financial priorities and not your debt — and that is your real goal.

If you keep that in mind, it does not matter which approach you take. If getting to zero on one account and posting that paid off statement on the refrigerator keeps you going, do it. Whether it is highball or snowball, they both beat no ball.

If you want to settle outstanding debts for less than what you owe, try our debt settlement tool.


Photo ©iStock.com/ismagilov

  Conversation   |   35 Comments

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Steffanie | 09.25.15 @ 16:03
I love the Dave Ramsey approach and i agree that it depends on the person on which is the best.
Britt | 09.25.15 @ 16:05
This was full of a lot of great information!
Kamie | 09.25.15 @ 16:06
I actually love Dave Ramsey, everything I have ever read from him is what has made me a more financial self-conscious person.
Erin | 09.25.15 @ 16:07
Good arguments for both. As long as the debt gets paid off, in the end it doesn't really matter.
Bobbie | 09.25.15 @ 16:11
When I was paying off debt I started with the lowest balance first. Once one was paid off, I took that money and added it to the next lowest one, and just worked my way up. By the time I was attacking the highest amount of debt, I was making huge payments and it did not take all that long to pay it off. Whatever works and keeps you on tack is the approach to take.
Elaine | 09.25.15 @ 16:13
Dave Ramsey has the right approach. It helps me to see something paid off and motives me more.
Kelley | 09.25.15 @ 16:16
I've been trying to pay off the debt that affects my credit the most, regardless of the balance amount.
Christina | 09.25.15 @ 16:16
For me, paying off the highest rate card first works best - it's definitely a case of doing what works for me.
Angie | 09.25.15 @ 16:18
Great article! Glad to see both sides presented. There is a lot to be said about the motivation and satisfaction of paying something off - and the motivation for paying off debt needs all the help it can get...
Clarissa | 09.25.15 @ 16:22
I recently checked out a Dave Ramsey book from the library. It had been very helpful to me. I started with paying off the debt from the lowest balance I had and am working my way up. I have also heard of some people starting with the highest interest rate. It just depends on how you want to tackle it.
trish | 09.25.15 @ 16:23
I think that it all depends on the mindset of the person in debt. I love the feeling of paying something off entirely to check that off the list.
Meredith L | 09.25.15 @ 16:24
I'm a proponent of the snowball method, but either way you go, the biggest challenge is to stop charging once the balance is down.
Stokes | 09.25.15 @ 16:28
Great article, great content. And information more people should have.
Daniel Dohlstrom | 09.25.15 @ 16:40
As with any financial , well any decision really get as much information as you can and choose what fits you the best
Nancy | 09.25.15 @ 16:41
I think that the best approach is the one that you are comfortable doing each month. I personally like the idea of paying the smaller ones off so that there are fewer payments to be made each month, then apply what you were paying on those to the bigger balances.
Ron | 09.25.15 @ 16:42
We snowball often. It seems we hit that stride and life happens causing a revamped snowball. I still would choose the snowball approach over other debt paying strategies.
Sara | 09.25.15 @ 16:45
We are attempting the snowball effect. We got in a bit of financial issues though and had to sort it out.
Zanna | 09.25.15 @ 16:53
"You will only save that money if you can stick to your debt reduction plan." That says it all. Finding the right plan and sticking to it will save you money, but finding and sticking to the plan is up to you!
Sarah | 09.25.15 @ 16:55
the only time I had a debt, I paid it off in full. It was pretty fun but I'm not sure what I'd do now if I ended up in debt for something (other than my house, of course... I'll be paying for this joker til the clouds part).
Jill | 09.25.15 @ 17:07
This is so helpful, i have always just divided any extra to all cards needing paid off at that time.
Carla Truett | 09.25.15 @ 17:17
Dave Ramsey is great! I love the feeling you get when I've made the last payment toward a debt.
Heather | 09.25.15 @ 17:25
I know so many people that follow what Dave Ramsey says. He does know what he's talking about.
Selena Walls | 09.25.15 @ 17:31
I'd personally start small debts first, that way it's easier to see progress as you pay those off.
Irene | 09.25.15 @ 17:31
I paid off the highest interest card first and always paid more than the minimum
Coryn | 09.25.15 @ 17:44
Ah. This was quite a bit of interesting information.
Beverly | 09.25.15 @ 17:48
This is a really good article. The best plan is the one you are going to stick to.
Chelsey | 09.25.15 @ 17:57
I love the Dave Ramsey approach. That is what my family is trying to do right now.
Christina | 09.25.15 @ 18:03
I also like Dave Ramsey approach. It's good to see progress.
George Middleton | 09.25.15 @ 18:13
Whatever works for you is the best way as long as you are doing it.
Tina | 09.25.15 @ 18:45
When paying off debt, it definitely matters that you do what works for YOU and what will keep you going. Personally the debt snowball is the best method I've come across for those I've talked to about debt. The satisfaction of seeing the zero balance motivates them to keep going and THAT'S what's important.
Crystal | 09.25.15 @ 18:53
Great information! Pros and cons to both approach.
gracie | 09.25.15 @ 18:55
I think it depends also what you have to work with financially. Working small debt down when you are low on funds helps you keep moving forward as you are able to clear a small debt at a time. Working on a large debt is tough going when it feels like you are never getting very far at working it down.
Rowan | 09.25.15 @ 18:59
As someone working to get out of debt, this is definitely something to keep in mind!
Alec | 09.25.15 @ 19:05
I'd probably pay down the highest debt first. I'd be more satisfied watching the big number grow smaller than watching a smaller number disappear.
Crystal | 09.25.15 @ 20:00
Good info
$commenter.renderDisplayableName() | 12.10.16 @ 05:20
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