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Why Pay Smallest Debt Before Highest Rate

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There are many different strategies to pay off debt. And they each have their advantages and disadvantages. Since personal finance is personal, it makes sense that different approaches work for different people.

So why do I prefer the smallest debt first approach? Well, as a college professor at a community college, I have learned that one of the biggest incentives are small victories. If students get an 'A' or sometimes a 'B' on their first exam or assignment, it gives them the confidence to keep going. If they get an 'A' in their first college course it gives them the confidence and incentive to keep going. Likewise, paying off the first debt gives you the confidence and incentive to keep going.

While it makes sense mathematically that you pay off the highest interest rate debt first, that doesn't matter. If we made all of our decisions mathematically, then we probably wouldn't get into debt in the first place. Finances can be an emotional decision driver. So it takes those small emotional victories, such as paying off the first debt quickly, to help boost your drive towards achieving the rest of your goal. 

I don't know about you, but if it took me 2 years to pay off my first of 5 debts, then I may just give up. After all, think of the sacrifices you may be making​ by not taking on more debt and sending extra money each month to your creditor instead of spending it on yourself. On the other hand, if you can see 'the light at the end of tunnel' so-to-speak, it makes it easier to keep going.

Only you know what will help drive you the most to pay off your debt. If paying the highest interest rate first works for you, then go for it. But for me, I need to feel like I am getting somewhere. Checking the first debt off my list gives me a sense of accomplishment, even if the math says something different. Besides, using the right strategies means that you will pay your debt off in such a short period of time that the interest rate won't be that big of a deal.​

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The Top 10 Tips to Improve Your Credit Score

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Bill Pratt

Bill is an Assistant Professor of Business at Piedmont Virginia Community College. He speaks on topics related to personal finance on college campuses across the country and is the author of multiple books on personal finance. He left the financial industry to focus on helping people become personally and financially successful. He lives in Charlottesville, VA with his wife and their three pets.