How do we intuitively manage our debts?
Despite its apparent burden on families across the country, many people do not effectively manage their debt. Most individuals juggle multiple kinds of debts, each coming with different terms and interest rates. This diversification of debt requires consumers to make decisions about how to best allocate limited resources to repay them. The most effective way to pay off debt over the long-term is to focus on the loans with the highest interest rates first. Yet evidence has shown time and again that consumers are likely to manage multiple debts in ways that cost them more over time.