International Baccalaureate (IB) Practice Exam

Which of the following is NOT recommended in the debt snowball method?

1. Every extra dollar should be thrown at the largest debt first.

2. List your debts from smallest to largest and pay off the smallest first.

3. Attack your debt with intensity.

4. Every time a debt is paid off, add its old minimum payment to the next debt payment.

The correct answer is: Every extra dollar should be thrown at the largest debt first.

The debt snowball method is a popular strategy for managing and eliminating debt, which emphasizes psychological motivation over the mathematical approach to debt management. In this method, individuals focus on paying off their smallest debts first to gain momentum and a sense of accomplishment, thereby encouraging them to continue tackling the remaining debts. The recommended practices in the debt snowball method include listing debts from smallest to largest and paying off the smallest first, attacking the debt with intensity to maintain focus and motivation, and rolling over the minimum payment of each debt that is paid off to the next smallest debt. Each of these practices helps to foster a positive mindset and create a manageable path toward becoming debt-free. Choosing to direct every extra dollar towards the largest debt first contradicts the principles of the debt snowball method. This approach would focus on minimizing interest payments without considering the psychological benefits gained from quickly eliminating smaller debts. By not incorporating this motivational aspect, it undermines the primary intention behind the method, which is to build confidence and resolve through rapid successes. Thus, the correct answer identifies the approach that does not align with the fundamental principles of the debt snowball method.