Strategy

There are two real decisions in paying off debt, and most writing about it spends all its time on the first one. Which order do you clear the balances in, and how much do you put at them each month. The second matters far more than the first, and it gets a fraction of the attention, because the first one has a name and a tribe attached to it and the second is mostly arithmetic about your own life.

The order question is smaller than it looks

Avalanche — highest rate first — is always the cheaper answer. That is not a matter of opinion; it falls out of the arithmetic every time. Snowball, smallest balance first, gives you a debt gone sooner, and for a lot of people that is what keeps the plan alive.

What almost nobody tells you is the size of the gap. On a typical set of balances it is often a month or two and a few hundred dollars over the life of the plan — real, but nothing like the difference the argument implies. The full comparison is here, with the numbers you can put your own balances into.

If the gap is small and one of the two makes you more likely to keep going, that is the one to pick. This is the rare case where the psychological answer and the financial answer are close enough that you can just take the psychological one.

The amount question is the whole game

Every month you pay the minimum on a credit card, most of the payment goes to interest and the balance barely moves. That is not a failure of discipline. It is what the minimum is designed to do, and it is worth seeing exactly how it works rather than taking it on faith.

The corollary is that the highest-leverage change available to most people is not reordering their debts. It is finding another fifty or a hundred dollars a month, or lowering a rate, and both of those are worth more than a perfect payoff order.

Where refinancing fits

A balance transfer can be genuinely excellent or an expensive way to feel productive, and which one it is comes down to arithmetic you can do in about two minutes: the fee, the length of the promotional window, and whether you will actually clear it before the rate reverts. The maths is here, including the case where the honest answer is no.

What this section will not do

It will not tell you that one strategy is a secret the banks do not want you to know. Both are in every textbook.

It will not quote a number without showing where it came from — every figure in here comes out of the same payoff model the product runs on.

And where the honest answer is that the difference does not matter much and you should pick whichever one you will stick to, it will say that instead of manufacturing a controversy.