As noted in our last post, Ryan was able to save up a bunch of money and repay more than the minimums on his student loans. This got us both thinking about loans and payment plans.

Earlier in the year Ryan had been avoiding paying one loan that was 0% interest because financially it made more sense to have the money in our accounts earning interest rather than paying it off quickly. This was one of the smaller loans, and it was completely knocked out this month.

At the beginning of this month Ryan's ideas on loan repayment seemed to change - he had switched from a purely economical point of view to more of an emotional one, and was determined to kill the loan as quickly as possible even though it was small and zero interest.

This had always been my view, but I have been an avid Dave Ramsey fan and adhere to his idea of snowballing and paying off loans smallest to largest. Snowballing, and snowflaking are two ideas that involve collecting money in smaller amounts and paying off debt smallest to largest, regardless of interest rate, so you can build up attacking power and knock them out as quickly as possible.

With snowballs you start by paying the minimums on everything other than the smallest loan, and attack that with all you have. Then when it is gone you take the minimum from the dead payment and pile it onto the payment of the next smallest loan - attacking that one with everything you have. This continues until you pay off the final loan with a combination of all payments from previous loans.

Snowflaking is the idea that any money you planned on spending and didn't, or that was not accounted for in your standard income for the month (like income from income streams) is put aside into a "snowflake" fund and used to build the snowball used in attacking your debt. This is a surefire way to increase the snowball's power with little streams of flakes coming in throughout the month.

These methods do not take into account the financial logic of interest rates and paying off the most expensive loans first - they rely on emotion and the fact that you get excited as you start seeing the debt really disappear.

The other way to pay off loans is the mathematical (non-emotional) way. This method involves looking at which interest rates are the highest and paying those first, in attempt to have the higher interest rates apply to smaller and smaller principle amounts. The loan with the highest amount of interest accruing gets paid first - this way you save money by having less interest to pay in the long term.

Originally this was our plan and Ryan put money towards his highest charging student loans rather than paying off the smallest (0%) loan that we could (and eventually did) pay off in a lump sum. This method isn't as emotionally satisfying, but does probably save you a couple hundred, maybe even thousand (depending on how big your loans and interest are) dollars.

I've always been an emotional debt killer - and Ryan is a new follower. He paid an extra payment on a loan and was "hooked" saying it felt great and he just wanted to pay more and more off. But we have also experienced the logical by the numbers path, and it works too.

What are your views? How are you paying off your debt?