The traditional formula generally goes something like this: pay down the debt with the highest interest rate first. Once that is paid off, proceed to the debt with the next highest interest rate and so on. However, that’s not the way most people go about paying off debt.
According to a recent study headed by Israeli marketing professor Moty Amar and Duke University’s Dan Ariely, when it comes to paying down debt, we often don’t act logically. If we are saddled with multiple debts, we tend to prioritize paring back the total number of loans, rather than reducing the total debt. In other words, we’ll tackle smaller debts first so that we have the peace of mind that comes with checking them off the list — even if it means paying more in interest charges in the long run.
Read more about the relations between humans and credit cards here: EmotionsCreditCards