When faced with a pile of debt, the idea of tackling the highest interest debt may seem like the most logical. However, for renowned financial advisor Dave Ramsey, this strategy can be a trap that keeps you stuck in debt longer.
Ramsey offers a different solution known as the "debt snowball method." This method focuses on the behavioral and psychological aspects of financial management, not just the numbers.
"You should always start with the smallest debt first, regardless of the interest rate," Ramsey explains that "personal finance is 80% behavior and only 20% knowledge."
The idea behind this method is simple: when you pay off your smallest debts, you feel a sense of "victory," which boosts your confidence and motivates you to keep going. With every smaller debt you eliminate, the amount available to pay off the next debt increases, creating positive momentum.
Ramsey emphasizes that this early feeling of success is what many people lack. Focusing on the highest interest debt may leave you feeling like you’re not making any tangible progress for a long time, which can weaken your resolve and make you more susceptible to giving up.
Ramsey said, "Eliminating the first debt gives you a quick win and builds momentum... Once you see progress, you feel excited to continue."
Ramsey added, "When you pay off a small debt, you feel like you can actually achieve something - and hope is what keeps you in the game. This early success fuels your emotions."
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