Once people decide to tackle their debt, they set about trying to figure out the best way to do it.
I think you can learn a lot about paying off debt by reading two of Aesop’s Fables: “Belling the Cat” and “The Tortoise and the Hare.”
These tales can be used as inspiration for two of the most frequently asked questions from borrowers ready to dig out of debt.
High vs. low: Should I pay off the debt with the highest interest rate first or start with the one with the smallest balance?
An occasional extravagance vs. denial until it’s done: Can I stop and treat myself while paying off debt?
Let’s start with the first question. The logical method is to first go after debt with the highest interest rate, because you will shell out less money. Yet let’s look at the dilemma presented in “Belling the Cat.”
A council of mice was convened to discuss a menacing cat. One mouse suggested a common-sense solution.
“Our chief danger consists in the sly and treacherous manner in which the enemy approaches us,” the mouse says in the Harvard Classics’ version. “Now, if we could receive some signal of her approach, we could easily escape from her.”
Just like a cat, interest can sneak up on you, too. By putting higher-interest debt first, you’re signaling that you understand its presence is dangerous to your financial health.
Let’s say you owe $10,000 on a credit card with an 18.9-percent interest rate. If you make a minimum payment of 2 percent, it will take you more than 30 years to get rid of the debt. And the total interest paid will be $29,128.26, according to the minimum-payment calculator at bankrate.com.