If your only criteria in deciding which loan to pay off first is to reduce the total interest paid, then it only makes sense to pay off the high interest loans first.

However, there is another measure of financial well being and that's positive cash flow.

Let's say that you have loans that look like this:

rate balance payment

8% 50,000 1000

6% 4,000 100

6% 4,000 100

6% 4,000 100

6% 4,000 100

6% 4,000 100

6% 2,000 100

6% 2,000 100

6% 2,000 100

6% 2,000 100

And, let's further assume that you don't have much money in your budget that is free to add extra payments with. Every month is a nerve-wracking task to make all the payments on time.

You get a tax refund of $4000. Where do you put it?

If you put it on two of the $2000 balance loans, you free up $200 a month right away. Now you have a $200 positive cash flow cushion to use to make life easier. Not to spend more! Just to make it easier and stress free to pay the remaining bills.

Which loans do you put the extra $200 you just freed up on? If you put it on one of the remaining $2000 loans, you'll free up another $100 a month in positive cash flow much sooner than you will if you put it towards the $50000 balance.

At some point you have enough positive cash flow to handle the regular emergencies life throws at you easily. You know, you need a car repair, or the hot water heater breaks, or some kid spikes your car tire for fun. In fact, you no longer consider them emergencies at all, just pains in the butt.

To my way of thinking, that's the time to pile on the cash towards the $50,000 balance instead of the smaller loans.

The traditional Dave Ramsey snowball method is to pay off the smallest loans first. That's less mathematically efficient than the advice to pay off the highest interest rate first, and also less mathematically efficient than what I propose in the situation above. The method I suggest for the situation above means you pay more total interest and subject your body and mind to much less stress.

I'll consider my face punch delivered. :)