Of course, paying off the debt with the highest interest rate makes rational sense. When just doing the math, it always is the better financial decision. Still, the study suggests that the human brain is wired to pay off the smaller debt first.
Michael Kitces wrote a nicely balance article exploring the rational and irrational sides of this debate. He writes:
The purpose of this blog post is not to debate whether Rick or Dave is smarter, or even about which is the better approach to debt management. The point is that we have two smart people with some real experience guiding people through debt issues, who seem to have used all of their smarts to come up with two completely opposite conclusions about the “best” way to tackle a serious issue. And the difference between the two ultimately boils down to one single issue: behavior.
It’s an interesting debate. To read Michael’s full post, click here.