Psychology or math: what works best for debt repayment?
If you find yourself juggling multiple debts, having a clear plan for paying them off can make a huge difference. Depending on which financial expert you follow, you will typically come across the Debt Snowball and Debt Avalanche method; both practical ways to pay off debt. 🔹 Debt snowball method Popularized by US personal finance personality Dave Ramsey. The premise is that you p ay off your smallest balance first , regardless of interest rate, while making minimum payments on all others. It is rooted in behavioral psychology i.e quick wins keep people motivated. 🔹 Debt avalanche method Rooted in mathematical optimization in academic and financial planning circles. Championed by economists and personal finance educators who focus on efficiency. The premise is that you p ay off the highest-interest debt first , while making minimum payments on all others. It’s the most cost-effective; s...