Last week I gave a talk at Powell’s bookstore here in Portland. During the question-and-answers session, one woman posed an interesting question. (I’ve forgotten her name, so let’s call her Kim to make things easy.)

Kim has been aggressively paying down her debt, and is pleased with her progress. However, her boyfriend thinks she’s doing it wrong. If I understand correctly, Kim’s boyfriend believes she should pay down each debt part way (perhaps a half or a third) so that none of her obligations is near its limit. He believes that this will increase Kim’s credit score. Kim wanted to know if this was a good idea.

Too much control
Obviously, it’s difficult to give a complete answer without knowing more about the situation. Still, I think this is a great example of how financial decisions are often about more than just the math involved. There are three basic approaches to debt here:

• Tackle the debts in order of interest rate, knocking off the high-interest debts first. Mathematically, this is the best option because — if you follow through — you’ll pay less interest in the long run.
• Tackle the debts in order of balance, starting with the debts you owe least on first. Psychologically, this is usually the best option because you can get some quick wins, knocking off several debts in a short amount of time. This is the method Dave Ramsey recommends. (And so do I.)
• Or, as Kim’s boyfriend recommends, try to coordinate payments so that each debt is paid down to a certain level before focusing on a specific obligation. For various esoteric reasons, this method should have the greatest impact on your credit score.

My recommendation during the question-and-answer period? No surprise: I told Kim that she should use the approach that makes her most comfortable, the approach that actually leads her to pay off her debts most quickly. I think it’s great that her boyfriend is eager for her to improve her credit score, but I think it’s dangerous to be dogmatic, especially if it involved becoming controlling about another person’s financial situation.