Prioritizing Your Debt

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I have often read and heard from financial experts about paying down debts from lowest balance to highest, obviously paying at least minimum on all of them. This “snowball” effect, as it is commonly termed, makes sense. However, this is just a psychological benefit. It’s a “win” to pay off a quick low balance to continue on with paying the next.

It’s refreshing to hear, however, the other choice: to pay down debts from highest APR to lowest, again paying at least minimum on all of them. It makes sense to choose a choice that mathematically makes more sense.

The way I see it, you’re either motivated to pay off your debt or you’re not. Why pay more in the snowball method to psychologically feel a win? If you do the math there, the psychology doesn’t add up quite right–but I get it.

I’ve paid for my schooling out-of-pocket my entire life, through undergrad and my first three years of grad school; and I am quite proud of this hard work in doing so. My final two years of grad school created some debt, but not comparatively to those I hear from other students. School debt is definitely a problem, but it’s too important to equally stay engaged in learning how to get a handle on it, and from various perspectives.

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Rich vs Wealthy

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“Wealth is measured in time, not dollars.”

Being rich is only about making money. People can make money, but often times it simply goes straight to their expenses. Being wealthy is different. In the very interesting book, Rich Dad Poor Dad, Robert Kiyosaki describes how being rich is not the same thing as being wealthy, and wealthy is where you want to be.

He defines “wealth” as “the number of days you can survive without physically working (or anyone in your household physically working) and still maintain your standard of living.” Wealth is measured in time, not in dollars. How many days can you survive without working? That number is your wealth. When you are wealthy, you are considered financially free.

I find this differentiation to be so interesting and very simple to understand. The definitions on these terms seem to vary from person to person given their perspective, but I think this explanation really makes it clear.

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