Question 5
When you have multiple debts, two popular repayment strategies are the debt snowball and the debt avalanche. The snowball focuses on paying off the smallest balance first to create quick psychological wins and momentum; the avalanche focuses on paying the debt with the highest interest rate first to minimize total interest paid. Behavioral evidence shows momentum helps many people stick with repayment plans, while pure math usually favors avalanche for total cost. Choosing between them depends on your priorities: speed of payoff feelings vs long-term dollars saved. In realistic scenarios that mix balances and rates, the choice can be obvious (if minimizing interest matters) or personal (if staying motivated is key). The scenario below asks which method will minimize total interest cost.
You have three balances: $4,000 at 22% APR, $1,200 at 12% APR, and $9,000 at 6% APR; which repayment method minimizes total interest paid?
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