Money Talks News - If you're in debt, you're not alone. According to NerdWallet, the average household with credit card debt owes more than $16,000.
Paying down debt is super-important. But when you find a little extra money, which would you do: Apply it to the smallest debt to get rid of it, or the debt with the highest interest rate?
Closing small accounts makes you feel like you've accomplished something. Unfortunately, when it comes to math, it's the wrong thing to do.
"Certainly, if consumers are allocating all of the money that they can to debt, then definitely the best thing to do is always send that money towards the debt or the loan with the highest APR," said an author of this type of study.
Often researchers find that although the math always favors paying high interest debts first, people are highly likely to pay off smaller, low interest accounts instead.
They called the tendency to do this debt account aversion; being compelled to eliminate accounts. So is it a good idea to put any extra money on the highest interest rate? The math says yes. But, there's more to it than math. There's also motivation.
If consumers find themselves not allocating enough money from spending to debt repayment, then to get more excited about the debt repayment process, they may want to let themselves close those accounts. Because it's better to pay down some debt than to pay down none.
Paying your highest interest debt is best, but keeping yourself motivated is everything. There are more specific ideas to help destroy debt at the Money Talks News website, just do a search for "debt.