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E3 Financial Coaching

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Why pay off your smallest debt balance first

May 7, 2017 By E3 Financial

Why pay off your smallest debt balance first

At E3 Financial Coaching we love helping people eliminate debt from their life. We have seen in our own life and many of our client’s lives how the weight of debt prevents you from reaching your financial goals. 4 out of 10 Americans with debt spend half of their income on servicing their debt. That is a lot of money to give to someone else. Yes we said “give” to someone else. Image if you could eliminate your debt and keep the money your paying in interest each month for yourself. How quickly could you reach your financial goals?

When providing financial coaching we show people how to use the debt snowball technique to eliminate their debt. E3 Financial Coaching teaches our clients to pay off their smallest debt amount first not the largest interest rate debt first. Our clients always ask, why would I do that when I’m paying more interest on the higher interest rate? The answer is simple; getting out of debt is 80% behavior and 20% head knowledge. Don’t just take our word for it, read about it from Time Magazine, Dave Ramsey or look at the results of an academic study from the Northwestern Kellogg University.

The Kellogg School researchers found that people with large credit-card balances are more likely to pay down their entire debt if they focus first on paying off the cards with the smallest balances – even if that approach doesn’t make the best economic sense.

By paying off the smallest debt first you create momentum and a sense of accomplishment. We have found this sense of accomplish keeps our clients motivated to continue with their debt snowball and ultimately pay off all of their remaining debt. Our clients that try to start with the highest interest rate tend to get discouraged and never finish their debt snowball.

We understand mathematically you would save on interest if you pay the higher interest rate first but generally the highest interest rate debt typically has the highest debt balance as well. This means it will take you much longer to pay off that first balance. The small savings in interest doesn’t matter if you get discouraged and never finish the debt snowball. By paying off the smallest debt first and receiving quick wins you will stay motivated but more importantly your behaviors will change for the rest of your life. We have seen these behavior changes allow our clients to go from being strangled by debt to winning financially and reaching their financial goals!

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Filed Under: Debt, Financial Plans Tagged With: debt elimination, debt free, debt snowball, eliminate debt

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513-685-0186
E3 Financial Coaching
4030 Mt Carmel Tobasco Rd Suite 226,
Cincinnati, OH 45255

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