Is it Better to Pay off High Balances or Low Balances First?

by Ryan

If you’re considering paying off your debts you may be wondering if you should pay based on total balance, or on higher interest rates. The answer is, it depends.

From a completely rational sense it will always make sense to pay off your debts in order of highest interest rates first.

For example if you have a credit card balance of $5,000 at 18% and a credit card balance of $5,000 at 22%, it would make the most sense to pay off the $5,000 credit card balance at 22% because it’s costing you more in interest payments.

However, from an emotional sense, the debt snowball may be an option that works better for you. Although it doesn’t make as much sense from a purely financial aspect, the debt snowball builds your confidence and is easier emotionally for many trying to pay off debt. The idea is that you pay off your smallest balances first, in order to gain confidence and gain victories along the way.

Rome wasn’t built in a day and your debt won’t go away in that amount of time either, so in order to stay the course build small victories along the way.

So to answer the question of “is it better to pay off high or low credit card balances first?” If you can stick to a plan that pays off higher interest loan rate first, then do so, but if it seems to big of a goal, try going with the debt snowball and paying off your smallest debt first so you continue with your debt free journey.

There isn’t a clear cut answer, but whichever route you stick to is the one that will work best for you.

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