Nearly every financial adviser always advises that debts should be paid off in a particular order: from highest interest rate to lowest interest rate. While this method makes sense from a mathematical point of view, it makes less sense from a psychological point of view.
Psychologically, 7 outstanding debts "feels" more overwhelming than 2 outstanding debts even if they are at the same total balance. Many people are struggling with debt and have tried on several abortive attempts to eliminate their debt using the highest-to-lowest method, and each time they failed. Why?
Because this payoff plan does, indeed, make the most financial sense if you have the discipline to adhere to it. By paying off the high interest rate debt first, you are minimizing the total you will eventually pay in interest. But this method does not work for everyone.
For many debtors, their highest interest rate debt was also their debt with the highest balance. Psychologically, they felt defeated; they could pay on this debt for months at a time and never seem like making the progress.
Dave Ramsey, the financial expert and the nationally-syndicated talk radio host...
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