Dave Ramsey says: Pay off small debts as soon as you can

Dear Dave,

We’re working the debt snowball, and together my husband and I make $93,000 a year.

The amounts of our remaining three debts are so close we wonder if we should take interest rates into account.

Two are student loans for $2,970 and $6,700, while the other is credit card debt in the amount of $4,750.

I also got a recent bonus of $3,600.

Should we put that toward our debt snowball?

— Robin

Dear Robin,

In a strictly mathematical sense, my advice of paying off debt smallest to largest may be wrong, but it’s still the correct advice.

Besides, if people were so good at math they wouldn’t have debt in the first place, would they?

If I’m in your shoes, I’d have that lowest student loan paid off in a heartbeat with the bonus you mentioned.

I’d throw the remainder, along with your regular snowball payments, at the credit card and keep the debt snowball rolling just like I normally advise.

When you’re pushing to get out of debt fast, interest rates don’t really matter much when you add up actual dollars on interest spent.

If you were going to keep debt around for six or seven years, then we’d have something to talk about.

But when you knock out the little debt and immediately plow through the others with a vengeance, it gives a real sense of accomplishment and confidence.

Remember, personal finance is 80 percent behavior and only 20 percent head knowledge.

So, mathematically speaking, the advice I’m giving you might be a few dollars wrong, but you’ll benefit in other bigger, long-lasting ways by gaining a sense of closure on your debts, learning how to delay pleasure and staying on a plan!

— Dave

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