The Best Strategy for Paying Off Debt Might Not Be What You Think

It takes forever to pay off debt if you only pay the minimum each month. If you owe $2,000 on 18% interest, it would take over 30 years to pay it all off. So what is the best way to pay off debt?

Most people say to focus on the loan with the highest interest rate, and pay that one off first. Mathematically it makes the most sense, but a recent study says that the psychology of debt also matters.

Researchers looked at the accounts of 6,000 people over the course of three years. They found that focusing on one account did help them pay down debt faster.

The ones who started by focusing on their smallest balances felt the greatest sense of progress. That made them more motivated to keep paying off debt.

In other words, say they owed $500 on one card, and $5,000 on another. Paying off the $500 balance first was better for some people, even if the interest rate was lower, because they felt like they were actually getting somewhere and making progress.