Debt Snowball – Highest Interest vs Smallest Loans First

by David Ning · 25 comments

Mathematically, it’s obvious that paying off loans with the highest interests rate first makes the most financial sense but as you may know, some financial experts promote “paying off the smallest loans first”. Why do they do that? Let’s take a look today.

Smallest Loan First

The smallest loans first method is simple. Instead of paying off debt with the highest interest rates (ie, the ones with the least favorable terms), you put that aside and list out all your debt sorted by the amount owed. Then, you pay the minimum payment of all your loans each month and pile all other available income for debt repayment into the loan with the smallest amount outstanding. Once the first debt is repaid, you try to repay the second smallest debt you owe and so on.

The argument is that eliminating bills are so satisfying that it will keep you on track with the overall debt repayment plan. The positive and quick feedback will have a great impact on your commitment to repaying your debt and will overcome the increase in interests that you need to pay.

Highest Interest Rates First

With this method, sort your debt by interest rates and try to pay off loans with the highest interest rates first while paying the minimum payment with all the other loans. Once one loan is paid in full, move on to the next down the list.

The facts are undeniable. Paying off highest rates first saves you the most total interests. In turn, it helps you pay off your debt the quickest because more of your hard earned money is going towards principal reduction.

Which Debt Snowball Method is Better?

While the math isn’t in your favor, I believe the smallest loan first method is better for most of us. Being able to eliminate one of your debt payments is huge and for most people, positive feedback is not only helpful but necessary. Without periodic encouragement, it’s very difficult to be disciplined enough to pay off all our debt.

I know that if I’m encouraged, I am more willing to do more. Therefore, being able to cross off debts may prompt me to save more, thereby allowing me to put even more towards my debts.

Sure the math doesn’t make sense, but Algebra (or is it Calculus?) in school never did either.

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{ 25 comments… read them below or add one }

W. Jackson April 6, 2009 at 6:56 am

I have read Money Makeover and for me it is easier to pay off the lowest loans first. Being able to see what you have done is better then only paying for the highest loans. Making a chart for my debt payments has helped me. I like seeing what I have done and knowing that financial freedom is on the way.

W. Jackson


Mike April 6, 2009 at 7:00 am

I really struggle with this one, since my mathematical mind tends to always win the argument. I understand the psychological benefits of paying off small loans and if it’s a choice between paying off small loans first and just making minimum payments, clearly paying off is better. If the goal is to get out of debt completely, then doing so as quickly (and inexpensively) as possible is the way to go. If you can become disciplined enough to pay more than the minimum on any loan, I believe that you can do the smartest thing and pay the highest interest ones first. Track the money you’re saving (or how much faster your debt is going away) by paying the highest interest loan first and you’ll have all the motivation you need.


marci April 6, 2009 at 7:23 am

In the past I did a combination of the two. Knowing that it was cheaper in the long run, I’d try to pay the highest interest one off first. But… if there was one that was closer to being paid off, I’d jump on that one first. Say I’d had 6 things to pay off – I’d keep on the highest interest one, but also pay attention to the closest one to pay off and put extra on it.

There was not just a psychological boost in getting that lower one paid off – there was a cash flow boost…. the money from not having to pay that little one anymore could go toward the big one. Plus, in lower income times, it was just making things easier on the cash flow needed each month. Therefore, my way was a seesaw back and forth. Worked for me – debt free and intending to stay that way :)


Eric J. Nisall April 6, 2009 at 7:54 am

There is always debate about this type of issue, and here really is no best way to go about it, as long as the debt is being paid down.

My personal viewpoint would be to keep additional interest from compaounding, so the highest interest rate is what I would target first and put most of my resourses toward. Some people may feel that if they can erase a small debt completely even though they will incur more interest from other labilities that it will help them psychologically, and that’s fine too. However, they will be staying in debt longer with that type of mentality, but if it happens to help people sleep at night, then I could not fault them.

I wrote about something similar that perhaps will better explain my view called


quick loan April 6, 2009 at 8:32 am

I like the smallest loan first method as well because it frees up a little more cash quicker to work into the snowball. It also really does help psychologically to get something taken care of.


tom April 6, 2009 at 11:28 am

Paying down the smaller amount actually gives you momentum and that sense of achievement so you are more motivated to keep going and pay off the rest.


jay April 6, 2009 at 3:02 pm

I like the momentum gained by paying the smallest loans first, but I also like the idea of eliminating several accounts quickly in case you run into a financial crisis. If I were to be laid off from my job, I probably wouldn’t be able to keep all my accounts current. I’d rather have to deal with calls from 7 companies instead of 14. Even if I never get laid off, I’d like to simplify things as soon as possible. Keeping track of fewer debts is easier and can reduce stress.


Ken April 6, 2009 at 5:27 pm

I have always operated this way…smallest to largest. Getting those early wins builds momentum.


Bible Money Matters April 6, 2009 at 9:49 pm

I posted on this topic a while back, and essentially I think you need to do whatever works best for you. Dave Ramsey himself even says that ” you can’t go wrong getting out of debt”. So just start doing it one way or the other, and get out of debt.


Horlic April 7, 2009 at 12:37 am

For me, I will choose highest interest rates first. My main focus is to save as many as possible.


Jake Adducci May 12, 2009 at 9:18 pm

I just did a calculus project on this very topic. You have 3 loans, Loan A $150,000 @ 6% for 15 years, Loan B $15,000 at 5.3% for 5 years, and Loan C $6000 at 6.5% for 10 years. Your grandmother passes away and leaves you $100 every month for the rest of your life. Which loan should get the $100 first? The Largest Loan, the smallest Loan, or the Highest Interest? After hours of calculating, I found out that the Highest Interest saves the most money. If you place the $100 in additional payments toward the Loans with the Highest interest, then, after paying off that loan, using that loan’s payments (plus the $100) toward the next highest, I was able to save (in this situation) $37,991.37 . In conclusion, I would support the Highest interest loan, being the interest continually is stacking, you must pay it off.


FYI June 6, 2012 at 12:22 pm

It took hours of calculating to find out that paying off the highest interest loan first saves the most money? That doesn’t even take calculating to figure out.

Think of it this way: Each loan is a savings account with a negative balance. Which savings account should you deposit your money in? The one paying the highest rate (charging the most interest).


Paul November 22, 2015 at 1:46 pm

A loan is a savings account with a negative balance?

As Mr Spock would have said, “Totally illogical Captain, totally illogical.”

And, not necessarily correct. If you had a small balance at a lesser interest rate than the highest rate, it can in “some circumstances” be more favourable to pay that off first and THEN dump your remaining payments on the highest rate. And… take note, in SOME CIRCUMSTANCES, but not necessarily all.


gino July 15, 2010 at 12:09 pm

Everyone is different, and I agree that a positive influence will keep a person on track. But I think we all need our own financial plans. There are companies that can help with that and give proper counseling to get rid of debts.


Matt May 24, 2012 at 7:12 pm

It is extremely scary that you people are debating which strategy is better. The goal is the become debt free in the cheapest most efficient way possible.

The “psychological gains” could just as easily be argued to be “psychological losses.” What if paying off a debt quickly made you justify going back into debt just a little as you know you can pay it off quickly? This whole “psychological” argument can go both ways, which is why it’s beyond stupid.

The bottom line is this: Paying off your highest interest debt first is always the quickest, cheapest way of becoming debt free.

The other way is like going on a diet and then visiting mcdonalds everytime you lose 10 pounds. How is it not?


Sam November 16, 2012 at 9:20 am

That doesn’t make any sense. This isn’t saying that you bing after paying off your smallest debt. The theory is that you pay off your smallest debt, have the psychological benefit of feeling like you accomplished something and then using that money to pay off the next smallest debt. It doesn’t say pay off the smallest debt and then get more debt. Where did you read that?


Scott April 22, 2014 at 2:28 pm

What if the lower interest debt had a monthly payment that put you out of budget? What if you didn’t have cash flow to deal with higher debt regardless of interest?

I don’t consider the debate to be an emotional issue. If paying off smaller debt helps with cash flow for the larger debts, then what does it matter.

Another point; isn’t it odd how higher interest debt is usually lower in balance? Department store cards are high interest but limits are usually no higher than $5k. mortgages or tuition loans are low interest of 4%-7% yet can cost $50k or higher. I think the debate is a moot point…start with the lower debts first and develop better cash flow for high debt pay-off or build an emergency fund.


FYI June 6, 2012 at 12:25 pm

Think of each loan as a savings account – with a negative balance. If you had a savings accounts with different rates, which would you prefer to make a deposit in? Probably the one paying the highest rate.


Home Budget Pal November 20, 2012 at 11:15 am

Great article! I totally agree that the “Smallest Balance First” method is better. I know from experience that it is very motivating to get those first few debts paid off and get the momentum you need to get the bigger ones paid off later.


Scott April 22, 2014 at 2:22 pm

I don’t believe that paying the smallest debt off first is as much emotional high as much as a cashflow booster. The reason is most smaller debt tend to actually be the higher interest. For example: a department store credit card usually is 15% or higher interest but people tend to only carry about 5k in debt. A student loan is only 4%-7%, yet varies between $20k and $120k! So my question is does the debate that the article makes really matter?

My focus would be more about what debt payoffs can be expedited to improve budget cashflow. The faster you pay off smaller debts, the cash used for those monthly payments are now surplus to “snowball” or add to the next debt payments on larger balances (the ones that really stress everyone out).


Garry kerr June 18, 2014 at 10:03 am

Additional payments toward the Loans with the Highest interest, as well that you can do the smartest thing and pay the highest interest ones first.smaller debt tend to actually be the higher interest.


troubled with debt February 26, 2015 at 1:12 pm

I have no credit card because I don’t make enough to qualify. I’m glad, actually! ???? But can I adapt the “debt snowball” to make it work for me? I’ve got my share of debts to pay, believe me!


Paul November 22, 2015 at 1:49 pm

Oh, absolutely. Debt is debt is debt. Whether it is credit card, credit union or your friendly local mafioso!


Anonymous February 26, 2015 at 1:16 pm

You were irresponsible enough to pile yourself into debt, so why are you expecting help getting out from under? Yes, I am being brutally honest with you.


Paul November 22, 2015 at 1:54 pm

It’s easy to be Anonymous and critical isn’t it?

Is there a valid reason that they should not look to find ways to relieve themselves of this burden? I haven’t seen anybody ask for a way to stick it to the man and NOT pay what is owed. Have you?

Were they irresponsible? Maybe, maybe not. Stuff may have happened where they needed money urgently. Which is more irresponsible? Not going into debt and letting someone die needlessly, or going into debt so that person can be saved/healed and go on to live a hopefully productive life?

Brutally honest are you? Methinks brutally arrogant is more appropriate.


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