Enough is enough! No more sleepless nights, you’ve decided to free yourself from the shackles of debt. You’ve been reading up on how to do this and found that the experts agree you should start by paying off your debts with the highest interest rates first.

The experts are wrong.

Granted, paying off the most expensive debt first makes mathematical sense. Clearing credit cards and loans with the highest interest rate will minimise the cost of becoming debt free.

So why, when it’s the rational thing to do, do I advise you to pay your smallest debts first and not your most expensive ones? Because people are not rational! If you were, you wouldn’t have gotten into this mess, would you?

Many people who undertake this task by tackling debts with the highest rates first become discouraged after a while. It’s only natural; we need to feel we’re making progress to stay motivated.

It’s easier to settle a small debt first and the sense of gratification you’ll get from doing so will fuel your desire to sort out the rest in rapid succession. Every time you settle a debt you free up cash that can go towards your next debt, creating momentum that will eventually see you entirely debt free.

So, the main reason for this ‘strange’ advice is the massive psychological boost you’ll get from seeing results sooner than you would have otherwise.

Stay motivated and become debt free by doing the following:

  • Order all your debts from those with the smallest to those with the largest balance.

  • Ensure you continue to make the minimum payments on all your debt.

  • Decide how much extra you can spend on repaying your debt.

  • Add to the minimum payment this extra amount until you’ve serviced the smallest debt.

  • When the smallest debt is paid, continue with the next one on your list. Add the cash you have freed up (the minimum payment of the first debt) to the minimum payment of the second debt as well as the extra amount that you paid into the first one over and above the minimum.

  • Repeat until you regain your freedom!

By the time you’ve reached the last and largest outstanding debt on your list, the extra amount should have grown much larger than the paltry amount you could afford to add to the minimum payment of the first debt.

Here’s an example of how this method would work:

  • Debt A: R7500 (Minimum monthly payment R450)

  • Debt B: R750 (Minimum monthly payment R75)

  • Debt C: R15 000 (Minimum monthly payment R600)

  • Debt D: R1500 (Minimum monthly payment R78)

    You would have to pay a minimum of R1203 per month and would deal with Debt B first.

    Assuming you can pay R300 extra per month, you would pay R375 into Debt B while only paying the minimum amount into the other debts.

    After setting Debt B you’ll start attacking Debt D. Add Debt B’s minimum payment of R75 to the extra R300 as well as the Debt D’s minimum of R78. You’ll now be paying R453 instead of R78.

    Even if you can’t afford the initial extra R300, you’ll be able to pay R153 instead of R78 into Debt D after servicing Debt B.

    If you are highly indebted you might want to consider stopping your retirement contributions for a year or so to free up some cash for your debts. Also, if the balances of two or more debts are very close, it would make sense to tackle the most expensive of those debts first.


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