Question
Paying off debt is an important step towards financial freedom. There are two popular methods for repaying debt: the snowball method and the high rate method. Which method saves you more money? Choose 1 answer: A snowball method B high rate method
Answer
4.2
(257 Votes)
Myrna
Elite · Tutor for 8 years
Answer
B. high rate method
Explanation
The snowball method focuses on paying off the smallest debts first while making minimum payments on larger debts. Once the smallest debt is paid off, the freed-up money is applied to the next smallest debt, creating a "snowball" effect. This method is primarily designed for psychological satisfaction, as it offers quicker wins which can motivate debtors to stay on track.The high rate method, also known as the avalanche method, focuses on paying off debts with the highest interest rates first while making minimum payments on other debts. This method minimizes the amount of interest paid over time because higher interest debts are eliminated earlier, resulting in overall cost savings.Financially, the high-rate method generally saves more money because it reduces the total interest paid over the life of the debt.