My debt repayment strategy was heavily influenced by Dave Ramsey’s approach 2-3 years ago when I felt I didn’t have the discipline to implement a strategy that was mathematically correct. (Nothing against the debt snowball, I recommend it to all my friends). My hybrid method now encompasses payment amount, interest rate and estimated pay off time. I call it the “modified snowball” For example.. we decided to pay off our car loan prior to student loan because the car loans free up more monthly capital even though the principal owed was higher (Not by much).

1. My student loan, her student loan, and the 2nd mortgage are all fairly close in amounts, so I truly do not think taking one over the other for length of payment will make much difference… so it is wise to instead choose the one with the highest rate and since the 2nd mortgage is more than double the rate of her student loan and nearly 50% higher than my student loan, it’s a no-brainer.

At the end of the day, if you can stick to the plan – regardless of how long it will take – then HI is the best option. If your debt amounts differ greatly, and you gain necessary momentum by killing the smallest ones first, regardless of rate, then do that.

For pete’s sake… do whatever works – just make sure you get rid of that debt!!

Admitting that it took you 10 months is also reassuring. Few of us can stop what we’ve been doing for years and reform in just a few days. This might expain why new years resolutions seldom survive January.

Good post!

1) The number of bills you pay a month goes down the fastest

2) Monthly cashflow increases the fastest (since required payments are gone)

3) Risk is reduced the fastest: can’t have a paid-off car repo’d, can’t be late on a paid-off credit card, etc. Plus the extra cashflow can meet (surprise) needs that would’ve been an emergency before.

4) and Dave’s favorite: psychological boosts from the early wins

The first three are mathematically quantifiable, and I could prove that the snowball beats HI if those are the goals. Number 4 is psychological (and not mathematically quantifiable), but if we use the weight-loss analogy that was mentioned below: which diet would you choose:

A) lose 2 pounds a month, every month
B) lose 30 pounds a year, but not a single pound until after 12 months

Mathematically, diet B is superior (30 lbs in a year -versus- 24 lbs). But it takes sheer willpower to follow plan B. The snowball is more like plan A with the early positive feedback that makes it the easier to follow diet (hence would have a higher success rate). If you quit after 6 months, at least you lost 12 pounds on plan A, instead of 0 on plan B.

With that link you posted, I don’t think that Dave is arguing that the snowball is the _fastest_ way to get out of debt — but, instead it is the _best_ way to get out of debt…

Like many of Dave’s teachings, many are quick to stray or theorize their own improved solutions – which is fine. What is important is to understand Dave’s intent. Here, it is a step up strategy that gains momentum, similar to weight loss. It’s easier to loose weight if your goals are 2 lbs, 4 lbs, 6 lbs, 10 lbs, 20 lbs, as opposed to going from 2 lbs to 20 lbs, then 6lbs.

Without knowing your numbers (and I don’t need to know), my concern would be that the 2nd mortgage moved all the way up from second to last on the list to second on the list. Having too high of goals without enough momentum can make it difficult to stick with.

BTW, I think it’s important to celebrate but also recognize there are 131,000 homeless veterans in America as today is Veterans day.

Please help spread the word to raise awareness. Thnx.

I also use a hybrid system of highest interest & smallest balance. There is definitely something to be said about focusing on the “wins” as Dave describes it.

About a year ago I listed all debts. I then focused on the 3 with the highest interest (I call those dangerous debts…all well over the national average). From there…I used the debt snowball to pay off from smallest to largest as if those where my only debts….of course I continued to make minimum payments on the other few.

Now that those are gone, I’ve reviewed the statements for those that are left. I am creating my plan for 2010 and it’s on!

Kita

“Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly.
Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.”

I’ll accept BG’s point, that great feelings can be created by knocking off the 2 $1000 cards for the fact that this frees up say, $100/mo in required payments. I understand that money is emotional (80% as Dave says? Ida know the percentage.) I object to the wording of his Myth statement.
I can state that even though it’s a fact that high interest first will wring out the most savings, that I am open to the fact that the success rate of DS is higher, over time more people are better off using it. Is it half (better off) 75%, I don’t know that either. What I do know is that one can calculate the cost either way and decide whether High Interest or Low Balance is right for them.

I try very hard not to judge people, although I have to gauge their risk tolerance and discipline. I find that absolute statements such as Dave’s myth can be harmful.

Love the post and the explanation of the “hybrid” debt snowball. Also the plug for FPU. I agree that Dave, while promoting his “smallest to largest” version, would applaud anyone who has the discipline and motivation to get rid of their debt.

One point about the DR version that I don’t think anyone has mentioned: many, when they start experiencing those quick wins, will get so enthused they will make further sacrifices and thus get out of debt even quicker.

I will be posting our envelope/spending journal system and am quite excited about it.

Cheers!!