Debt Snowball Advice is Terrible

By Mark Shead

Friday, January 28, 2011 at 05:39 PM

I have a big problem with the debt snowball idea. In a nutshell it is this: If you are trying to get out of debt, start with your smallest debt and pay it off first. Then your next biggest debt, etc. The idea is that the mental benefit of making a debt go away is a greater advantage than the money savings of paying off your higher interest debt first. While I can see this point, it seems like it is encouraging a lack of financial literacy. People who are going to the debt counselors who are advocating the debt snowball are in financial trouble. If they are in trouble with debt, they probably lack some of the basic financial literacy that they need to properly manage their finances. The debt snowball doesn't fix the core problem of financial illiteracy. In fact it makes it worse because it encourages them to do things that are financially unwise. If people can't learn to get the same psychological "buzz" out of really saving money by choosing an optimal payoff strategy, I would