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Comment by mathieutd | Hacker News Reader

I disagree with this. You should pay your higher interest rate debt first.

I've looked at the difference with a few people. It depends on the balances and interest rates, but the difference is smaller than I would have guessed. With tens of thousands of dollars of debt, I've seen the difference be just a couple hundred dollars.

Smallest to largest balance frees up cash flow faster, making it more likely the person won't go into additional debt (and hopefully won't get discouraged and quit the program all together).

For anyone wanting to explore, here's a handy calculator: https://www.magnifymoney.com/calculator/snowball-avalanche-c...

I tried the calculator. It doesn't seem to work correctly for me. (Chrome browser...)

Thats OK. Paying the smallest 1st builds psychological momentum. If people have willpower, financially paying the highest rate makes sense. People with less willpower and drive gain confidence by checking off a loan as paid, then moving to the next.

I like the way /r/financialindependence puts it:

Consider either the snowball or avalanche method depending on your financial and psychological situation.

I guess the parent is arguing for a psychological benefit to reducing the number of discrete debts as quickly as possible. But I agree with you. If someone has credit card debt and then some other debts at significantly lower interest rates, in most cases (modulo liquidity) it would make sense to put any extra money towards the high interest credit card debt first.

I agree, you should pay the highest interest rate debt first. But, you should also not miss out on higher returns on your money to pay debt. Specifically in the US, I mean 401k matching from your employer. If they match 50% on your first 6%, then the 50% return on that money is going to be greater than a 22% credit card debt.

Thank you, I never made that connection! (not being sarcastic)

So the government allowing usurious interest rates is a ploy to incentivize working for employers, similarly to how employer-provided insurance works.

So one of the steps to liberate us from corporate work is to limit interest rates along with offering public healthcare.

Not saying this is good or bad, just something to keep in mind while viewing the issues from alternate perspectives.

Yes, paying the maximum that you can to the highest interest rate debt and paying the minimum to all of the lower interest rate debt is the optimal greedy algorithm.

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