May 16, 2016 Leave a comment
And the part that will cause grumping… the Comparison of the Two Methods.
Now Remember, Method 1 we paid off the lowest debt balance first and in Method 2 we paid off the highest interest rate first. Now, yes I did leave the mortgage payment at the bottom for both of these methods. This is due to the fact that even trying to pay if off any sooner than last does not make sense. It will just take time and leaving it at the bottom means that I have more money to throw at it than if it were higher up the payoff chain.
Method 1 we paid off in this order: Method 2 we paid off in this order:
US Bank US Bank
Student Loan 2 Capitol One
Student Loan 1 Student Loan 2
Capitol One Window Loan
Car Loan Car Loan
Window Loan Student Loan 1
|Method 1- Lowest Balance
Payoff Complete- October 2025
|Method 2- Highest Interest Rate Payoff Complete- December 2025|
|US Bank (Done 1st)||13.49||US Bank (Done 1st)|
|Student Loan 2 (Done 2nd)||187.20||Student Loan 2 (Done 3rd)||205.43|
|Student Loan 1 (Done 3rd)||227.58||Student Loan 1 (Done 6th)||248.10|
|Capitol One (Done 4th)||323.35||Capitol One (Done 2nd)||597.93|
|Car Loan (Done 5th)||373.23||Car Loan (Done 5th)||417.86|
|Window Loan (Done 6th)||1,119.66||Window Loan (Done 4th)||933.17|
And the actual math numbers of direct comparisons look like this:
|Method 2-1||Method 1-2|
|Student Loan 2||$18.23||-$18.23|
|Student Loan 1||$20.52||-$20.52|
So yes, the math does support paying off the Highest Interest Rate First. However, while the math might support it what does your life support? Do you need the quick and easy payoff motivation that Method 1 does or do you just want to get crap done and save a few bucks doing it? Pick the way that works for you!
Also, don’t 100% snowball! Take a few dollars of the big payoffs and keep them in your pocket to help you stop reaching for the safety of the credit card. The biggest mistake you can make in debt payoff and budgeting is not paying yourself and giving yourself some money to go to the movies with, grab a drink with a friend, or put it away for DisneyWorld.
Yes, Debt payoff is a process that you have to sick with. But, in the end, it will be well worth it!