Pay Down Debt: Financial vs. Emotional Considerations

by Ryan Yates

Pay Down Debt - Financial vs Emotional Considerations

Trouble deciding?

When it comes to your debt reduction plan, it is important to consider two different aspects of the process: the financial and the emotional.

When you pay down debt, experts recommend that you find ways to cut back your spending and use the savings, or to make more money to accelerate your efforts.

There is very little debate over the idea that you should attack your debt systematically, concentrating your efforts on one loan at a time, putting extra toward that loan, while paying only the minimum on others, until it is paid off.

The debate, however, comes when it’s time to decide which debt to tackle first.

Financial vs. Emotional

There are two main schools of thought when it comes to aggressively paying down your credit card debt. On one side is the financial consideration, which encourages you to pay off the debt with the highest interest first, and then work your way down the list.

The emotional consideration suggests that you start with your smallest debt, and then work your way up to the highest balance on your list.

Both methods have their strengths and weaknesses. When you look at matters from a purely financial standpoint, starting with the highest interest debt means that you can save extra money over time.

You get rid of the debt that is costing you the most as quickly as possible, and that reduces what you pay in interest overall. However, starting with the highest interest debt can mean getting off to a slow start with your debt repayment.

When you start with your smallest debt, the “debt snowball” method, you get a bit of a psychological kick. Your first loan is paid off quicker, and that gives you the emotional fortitude to keep going, moving on to the next debt.

When you feel discouraged, you have the memory of that first paydown to help you out. On the downside, though, unless your smallest debt also corresponds to your highest interest rate, you will pay more before everything is paid off.

Which Pay Down Debt Method is Best For You?

Like all things related to personal finance, what works best for you is a very personal thing. Finances are rarely one size fits all. Instead, you should consider what is most likely to lead you to success.

See Jeff’s Debt Destroyer System.

If you are very analytical, and if you can keep going even when you are off to a slow start, your debt repayment plan should based solely on will save you the most money in interest payments.

On the other hand, many people need that emotional boost. There’s nothing wrong with that. Many become discouraged when they feel that progress is slow. When you start with the highest interest rate debt, your progress will be slow at the outset.

It will take time for your payments to apply more toward the principal than toward interest each month. In some cases, that can lead to despair and eventually giving up. If you are concerned that might be an issue for you, start with the smallest debt in order to provide you with the psychological support you need to be successful.

What type are you? Would you rather focus on the financial or the emotional?

Photo by InaFrenzy


krantcents June 20, 2011 at

I am a financial type and would pay down the most expensive debt first! I would get satisfaction from seeing it go down and therefore satisfy the emotional need.

Miss T @ Prairie Eco-Thrifter June 21, 2011 at

I think both methods are great. As long as you are paying off debt you are on the right track. I have gone both ways in the past and they are both satisfying. Sometimes the large debt can feel overwhelming so you focus on the small one.

Kevin @ DebteEye June 22, 2011 at

Debt Stacking is far more superior than debt snowball. If anyone needs a psychological kick, I think the amount of savings & # of months saved will suffice.

J.B. July 23, 2011 at

Good Article. It is a good idea to pay the highest first, rather than the smallest. Either way keep yourself from spiraling into bad credit problems.

Andrew Anderson September 19, 2011 at

Astonishingly educative many thanks, I think your current subscribers might probably want a great deal more stories along these lines keep up the good content.

Michael Smith September 27, 2011 at

Incredibly beneficial cheers, I do think your trusty audience could very well want considerably more information along these lines carry on the great work.

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