arcticpineapplecorp. wrote:A post that is telling people to use the debt snowball is fine...provided you explain it's not the best economical way.
Well, sort of.
People keep contrasting the "snowball" vs. the "avalanche" as if the former is justified by psychology and the other by math. As if it's a given that the snowball method is mathematically inferior, and that you always "pay" a bit of an economic penalty for a purely psychological benefit. But, as BrandonBogle pointed out, there's the issue of cash-flow.
Yes, the avalanche will minimize the total interest paid and maximize the speed with which you pay off all debts. There's economic sense to that, and if those two things are your primary goals, with cash-flow less of a concern, then that may be the method for you.
But the snowball will maximize the speed with which you free up funds. It reduces risk and increases financial options more quickly. That's a perfectly acceptable economic
goal to have too. There are lots of cases where we trade cost and/or time for reduced risk (insurance springs to mind). Is that psychology? Some of it, sure, but risk can be valued, so it's math too.
So there's good math in both approaches, it just boils down to what you're choosing to maximize/minimize.
As I've put it here before, it's similar to how pilots will typically take off at an angle that puts as much air beneath the plane as quickly as possible, even if that isn't the angle that saves the most fuel or gets you where you're going the fastest. Altitude equals safety and increases options in the event of an emergency. It's about choosing to minimize risk rather than maximize speed or fuel savings. Paying off loans is gaining "financial altitude" in the same way.