Which Debt Should I Pay Off First?

So you've found yourself knee-deep in debt. Whether it's from an unexpected medical bill, student loans, a rough patch in your finances, or anything else, the result is the same: you owe money to multiple creditors, and you're not sure how to start paying it off.

That's why this guide exists. We'll walk you through some popular debt payoff strategies, so you can figure out which debt to pay off first.

Which strategy is right for you?

There's a reason why multiple debt payoff strategies have emerged over time: different approaches work better for different people. Here's a breakdown of some of the most common methods.

The debt avalanche

In the debt avalanche method, you prioritize your debts in order of their interest rates, starting with the highest. This saves you the most money over time, but it can be slow and discouraging.

Here's how it works:

1. List out all of your debts and their interest rates
2. Pay the minimum amount on all of your debts
3. Put any extra money toward the debt with the highest interest rate
4. Once it's paid off, put all of the money that went toward that debt to the next highest-interest-rate debt

The debt snowball

In the debt snowball method, you prioritize your debts in order of their total balance, starting with the smallest. This takes longer and costs more in interest in the long run, but you'll pay off individual debts more quickly. Seeing that progress can be encouraging.

Here's how it works:

1. List out all of your debts and their balances
2. Pay the minimum amount on all of your debts
3. Put any extra money toward the debt with the smallest balance
4. Once it's paid off, put all of the money that went toward that debt to the next smallest balance

The debt snowflake

In the debt snowflake method, you put any small amounts of unexpected money immediately toward your debt. This could be birthday money, a tax refund, a rebate check, or money from selling items. This can work well either on its own or in combination with other debt payoff strategies, like the avalanche or snowball.

Debt consolidation

Debt consolidation involves combining multiple debts into one single payment with a lower interest rate. This approach is best if you have high-interest debt, your credit score qualifies you for a consolidation loan with a lower interest rate, and you can make consistent monthly payments.

Balance transfers

Balance transfers involve moving debt from a high-interest credit card to one with a lower interest rate, usually one with a 0% introductory APR. This can save you a lot of money, but it only works if you can pay off the balance before the introductory period ends. Balance transfers often come with fees.

Which debt to pay off first

There's no one-size-fits-all answer to which debt to pay off first. It will depend on your financial situation and personality. However, here are some general guidelines:

• High-interest debt: Usually your credit cards. Tackle this first, as it grows the fastest.
• Tax debt: If you owe back taxes, the IRS charges penalties and interest. Address this promptly to avoid accumulating more.
• Student loans: Usually lower interest, so they can be paid off more slowly, but it depends on the interest rate.

And if all else fails, getting expert help from a non-profit credit counselor is a great idea.

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