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Today we’ll focus on the Highest Interest Rate First snowball. This snowball is very common, and I haven’t been able so far to find out who originated it. It too is straightforward, but has some serious psychological disadvantages. However, to make up for those disadvantages, the math DOES work out for this one. It’s the most cost-effective of the various debt snowball methods, providing the largest savings over the life of the program. This one, assuming you follow it through, will save you more interest than either of the other two debt elimination strategies previously mentioned.

The single biggest drawback with this method, is that many times there is no up-front positive re-enforcement. Many people end up having LARGE amounts of debt on VERY HIGH interest credit cards. Personally I’ve known people that have had more credit on a card with 23% interest, than on all other accounts having under 14.99% interest, combined. This means that to use this system, they would probably not see any bills paid off for many months, if not years. It’s hard to jump on this snowball w/o a lot of self control, and obviously if we had self control we wouldn’t need the snowballs in the first place. I know I wouldn’t.

The Highest Interest Rate snowball works as follows;

1) Take all your bills, subtract all the ones w/o ends (utilities, etc) and then order them from highest annual interest rate to lowest.

2) Pay the minimums on all the bills except the one with the highest interest, and pay as MUCH as you can on that one until it’s gone.

3) Continue to the second highest interest rate, adding the amount you paid on the first before it was paid off and pay that one,

4) Et. Cetera,.. and so on down the list of bills until the last bill is gone.

Pros:

• Easy to follow.
• Least interest paid.

Cons:

• Hard to stay on the plan.
• Little initial positive feedback.

Overall: The Highest Interest Rate First snowball isn’t for the financial faint of heart. It’s easy to lose sight of the goal, if you need binoculars to see it. That’s what does most people in with this snowball, is the lack of visible progress. It’s very disheartening to continue to pay on a bill for a long time, not seeing any progress (in the number of bills paid off). Many people that jump on this one as their first scheme roll right back off because of the difficulty of maintaining payment discipline.

I’ve moved to this one as my current debt strategy, only because I’ve done the other two already, and worked my way up. I see this snowball as the Marathon Run, the other two are the Training Runs you do to get ready for this one. If you do the Marathon without training, you’re sure to fail, but if you train for it, you’ll succeed.

I’m not completely out of debt, but I’m working on it hard. I dug a pretty deep hole, so it takes time to scale back out of it. All three of the debt snowballs have been instrumental in various parts of my progress to date, and each was useful in their time.

Planning out your strategy and taking into account your own weaknesses, is the only way to succeed. Everyone gets knocked down sometimes; it’s the ones that can get back up and continue on that make it to the finish line.

See you there.

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