“You have to first pay off as much as you can of your highest interest debt before you pay off your smaller, insignificant debts.”
Those experiencing financial difficulty have probably always adopted the above piece of debt advice as their personal mantra. In theory, this makes sense; if you pay off your biggest debts as quickly as possible, you’ll be able to reduce the amount of interest you would otherwise accumulate, right? Right.
In reality, however, this traditional piece of debt advice may not offer the most effective method of debt repayment. For many people, focusing on paying off a number of smaller debts may prove to be more ideal in the long run.
Think of it like this: When you teach your child to walk, you teach them to take small steps. When you quit smoking, typical advice says you should gradually phase it out. When you’re losing weight, rapid loss is frowned upon because of the consequences it can have on your health.
Why should we aim to reduce our debt in this way? Because the personal satisfaction gained by achieving a small goal offers a greater motivation to aim higher, as opposed to the disappointment of aiming too high and falling short on your first attempt.
Similarly, when looking to shed the weight of debt, the best advice is to take baby steps rather than quitting cold turkey. The small victory of paying off lesser debts first can give you a much-needed boost and encourage you to pay off all of your debts.
Adopting smarter financial habits and taking debt advice on board can have dramatic impacts on your financial situation. If your finances have gone down the road of no return, however, professional debt advice and assistance may be exactly what you need.
Debt Free Australia operates a 24/7 hotline so that you can receive professional and reliable debt advice at anytime you need it most. Give us a call today to discuss your finances and see if any of our personal debt solutions are appropriate for you. Contact 1800 676 598.