There’s a debate that persists in the personal finance world about the right order in which to pay off debts. Generally speaking, there are two main schools of thought:

  1. Pay off debts off in the order of interest rate (highest to lowest) because it makes the most mathematical sense; you’ll pay the least amount of interest this way. Most financial experts I’ve run across advocate this method.
  1. Pay off debts in the order of the balance left on the debt (lowest to highest) because it makes the most psychological sense; eliminating small debts quickly will keep you motivated. Dave Ramsey, probably the most well-known debt guru, is a strong proponent of this strategy.

So which is the best way? My take: the one that works for you.

And that’s not a cop out answer.

As you read the description of those two strategies above, my guess is that one of them resonated with you more than the other.

While both of them (hopefully) made sense, one of them probably felt the most right in your gut.

That’s the strategy to use.

Seriously, don’t overthink it.


Personally speaking, we used #2 – the small balance to large balance method – when we were in aggressive debt reduction mode. Like Dave suggests, it was motivating to me to eliminate small debts and save the biggest balances for last when we had freed up more money (the payments on those earlier debts) to throw at them.

Did we pay more in interest that way? Maybe a bit (I never did the calculations). But I know that we paid way less in interest than if we had started a debt payoff plan and then lost our mojo along the way.

Jean Chatzky quote

Still, I get that it would drive some people crazy to be paying off a 2.9% car loan when they have double-digit credit card debt hanging around. Never mind that math; the real issue is that ignoring the interest rates and paying off debt according to balances would keep them up at night. So, for them, the interest rate method is definitely the way to go.

And here’s something else to keep in mind:

You may not be dealing with an either/or situation. At least not much of one.

Once you gather all your information you may find that some of your smallest balances have the highest interest rates anyway. That was our case. There was a little bit of difference in the order of the debts with the two different methods, but not much.

So what’s the best plan? It’s the plan that makes the most sense to you. The plan that keeps you motivated and moving forward. The plan that keeps you excited about paying off debt.

Once you’ve decided on that, get busy throwing money at whatever debt is first on your list and then put your head down and keep going.

The decision to do that is more important than any method or order you choose, based on what some expert or another has to say.

Question: Have you used one of these methods to pay off debt? What’s worked for you?

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Survey Results

by Julie on July 18, 2014 · 4 comments

Thank you to everyone who took the time to take my two question survey this week.

Do you like seeing the results when you take a survey? I know I do, so I wanted to share these with you. (You can click on any of the charts below to make them bigger.)

Blog Topics

Screen Shot 2014-07-18 at 7.54.41 AMI was surprised (and happy!) that Saving and Investing was the clear winner here. We’re focused a lot on those two things at this point in our financial lives so I’m thrilled those are topics that you want to hear more about.

Same with Making Extra Money and Simplifying. Those are things I think about every day so I’ll try and put my thoughts to paper (or screen) more often on those two topics.

Screen Shot 2014-07-18 at 7.54.53 AM

I will continue to cover the other topics as well, using your survey results as a guide to how often I post about them. Even Blogging, which came in last, is still of interest to almost 20% of you so I’ll keep it in the mix too.

Posting Frequency

Screen Shot 2014-07-18 at 7.55.04 AMClearly you guys are a flexible bunch! You’re happy to let me decide.

I would like to pick up the posting pace a bit so I’ll be working towards that.

Final Thoughts

I received some lovely comments from you all. Thank you. Blogging can be a bit lonely so it’s nice to know that there are real people out there reading what you write.

Some of you left questions too, and I’ll be addressing those in future posts. Blog post ideas are always welcome, so never hesitate to contact me through the blog and let me know what you’re interested in.

Finally, if you didn’t take the survey and would like to, you can do that by clicking here.

Thank you again and have a wonderful weekend.

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How Big Should Your Emergency Fund Be?

by Julie July 17, 2014

The following is a guest post. Today’s low interest rates make opening a savings account about as appealing as stashing your cash under a mattress. However, you need to have money set aside for major emergencies, such as job loss, health emergencies or other unforeseen crises. So how big should your emergency fund be? Popular […]

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Imagine Yourself Rich: Who Would You Be Then?

by Julie July 17, 2014

The following is a post by Sam Peters. Dang! The old lawn mower is really on its last legs. Whatever it is, it is likely terminal. It’s missing a muffler, anyway. Now, like an old dog that has begun to snap at the postman and look at the cats with real hunger in its eyes, […]

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A Two Question Survey

by Julie July 16, 2014

I’m popping in to ask if you’d take a minute to take the two question survey below. I’d be most grateful! Create your free online surveys with SurveyMonkey , the world’s leading questionnaire tool. Receive future posts by email Email Address

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Found Money: a 2 Year Update = $43,082

by Julie July 7, 2014

I’m a big believer in little amounts of money. Two years ago, in July of 2012, I wrote about the $318 in proceeds from my garage sale and what I was doing with them. I didn’t realize it at the time but that was the first of what would become regular found money update posts. Since […]

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Happy 4th, Some Housekeeping, and a Found Money Reminder

by Julie July 3, 2014

Happy Thursday and Happy (almost) 4th of July to my US readers. I wanted to pop in to say hi and – for some of you – this may be the first time you have heard from me in a while. That’s because I’ve switched email subscription services, and that shouldn’t interest you at all unless you […]

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Enjoy fireworks and sparkling cash bonuses

by Julie June 30, 2014

Offer details: 360 Checking®: Earn $100 when you open a 360 Checking® account. Sign up for fee-free 360 Checking®, make 5 Debit Card purchases or 5 mobile deposits with CheckMateSM within 45 days and snag a cool $100 on day 50. This has to be your and your joint account holder’s (if you have one) […]

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Financial Thoughts from a New Student College Orientation (with Some Actual College Cost Numbers)

by Julie June 30, 2014

Last week, Tom and I accompanied Grant to his new student orientation at Saint Louis University (SLU). It was a day and a half event, so we drove down on Wednesday evening and back on Friday afternoon. St. Louis is a four hour drive from Kansas City and I was pleasantly surprised to find that […]

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New Home Purchase Applications Surged in 2014

by Julie June 28, 2014

The following is a guest post. November 2013 was not a good month for the housing market. The month saw a 16 percent drop in home sales from October in addition to continued falling prices (for the fifth consecutive month). And with falling sales and prices come fewer sellers, as homeowners decide to wait to […]

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