| How about a counterexample to prove that your "100% correct" statement is 100% bullshit. (As it turns out, this example is also an instance where the debt snowball completely fails, as well, and is thus proof that some people need debt counseling rather than simplistic ideas [including yours].) Let's say you owe $119.07 @ 20% on one account, $1031.00 @ 15% on another account. Assume the minimum payment is 3% on each account and you only have $150 to spend every month on these two bills. Let's see what happens when we apply your genius logic and pay off the higher interest first... Since we have to make the minimum payment on the lower interest rate, we pay $30.93 to the $1031.00 balance. That leaves $119.07 to pay off the higher interest rate account... well look at that, we paid it off in one month! So we have no balance at 20%, but let's consider the other account. The next billing cycle applies 15% interest, and now you owe $1150.10. Pay $150, you owe $1000.10, but after 15% interest, it becomes $1150.12. Then $1150.14. Then $1150.16. And it continues. To INFINITY. You could NEVER pay off this balance in this situation. However, if you pay off the balance with the smaller interest rate, first, it would take you a long time to pay it off, but it would get paid off. I came up with this off the top of my fucking head... it was not hard at all to prove you wrong. I could've came up with examples where this situation presented itself 6 months down the billing plan... a year and a half down the billing plan... etc. And if it was that easy to prove you wrong, it is conceivable to think that there are people who can get into this situation... ending up with a balance, interest rate, and just enough money to ultimately never pay it down. The bottom line is that finance is not as simple as you want it to be (or think it is)... and this is why people are in trouble. Financial counselors would tell a person in this situation to make a few minimum payments to the account with the higher interest, and then once they were out of the risk of never being able to pay off the higher debt, they would then attack the higher interest rate. But my point remains... it is absolutely not always the best idea to pay off the higher interest rate first. Just like it's not always best to pay off the smallest balance first (as I said, if there is a large difference in interest rates, it's always best to consult someone who actually knows what they're talking about). /discussion, because a counter-proof destroys a theory.
"When you say this, will you be surprised if your arguments seem to move about instead of staying put? And will you accuse me of being Daedalus who makes them move, though you are yourself much more skillful than Daedalus and make them go around in a circle? Or do you not realize that our argument has moved around and come again to the same place? [...] Or do you not remember?" - Socrates |
