What Should I Pay Off First? How to Prioritize Your Debt
Tuesday, April 22, 2025
Managing debt can feel overwhelming when you’re balancing credit cards, loans and monthly bills. Without a clear strategy, interest can quickly add up, and some debts may start to feel more urgent than others.
This article will walk you through the best ways to prioritize debt and bills, including methods like the debt snowball and debt avalanche, so you can create a plan that works for you.
Paying off debt strategically isn’t just about clearing balances—it’s about saving money and protecting your financial future. Here’s why prioritization matters:
When managed carefully, debt reduction improves your cash flow and gives you more financial flexibility.
Focuses on paying off the smallest debts first, regardless of interest rate. This method helps you build psychological momentum by achieving quick wins.
Example: Pay off a $500 credit card balance first, even if it has a lower interest rate than other debts.
When to use: If you need motivation and prefer immediate results, this method is highly effective.
Prioritize the debt with the highest interest rate to save money in the long run. Make minimum payments on all debts but target any extra cash toward the highest-rate debt.
Example: Pay off a 24% APR credit card before addressing a 7% car loan.
When to use: If your main goal is to minimize total interest paid, this strategy is ideal.
Focus on resolving debt that could cause immediate harm, like tax debt or payday loans. Paying off debts in collections first may protect your credit and prevent lawsuits.
When to use: This approach is necessary if you have urgent or legal liabilities.
These should be your top priority because they carry compounding interest. Payday loans, with APRs over 400%, are especially dangerous and should be eliminated quickly.
While student loans generally have lower interest rates, federal loans may offer forbearance or forgiveness programs. Consider focusing on private loans first, which have fewer repayment options.
These are often lower priority since they come with lower interest rates and longer repayment terms. Making occasional extra payments on these loans can reduce long-term interest.
Always prioritize tax obligations to avoid penalties, wage garnishments or liens.
Address debts that have gone to collections to protect your credit health and prevent legal action.
Pay rent, utilities and other essential bills on time to avoid disruptions in your daily life.
Credit cards typically have higher interest rates than loans, making them a higher priority. If possible, transfer balances to 0% APR cards to save on interest during the promotional period.
Installment loans have fixed repayment schedules and lower interest rates. As long as you stay current, these loans have less immediate impact on your credit compared to revolving credit like credit cards.
The key to paying off debt is consistency. By choosing the right strategy—whether it’s the snowball, avalanche or triage method—you can make steady progress and stay motivated.
Prioritize your debts based on their impact and select methods that align with your goals. With discipline and a solid plan, financial freedom is within reach. Celebrate small wins along the way and stay focused on building a debt-free future.
The content provided is intended for informational purposes only. Estimates or statements contained within may be based on prior results or from third parties. The views expressed in these materials are those of the author and may not reflect the view of National Debt Relief. We make no guarantees that the information contained on this site will be accurate or applicable and results may vary depending on individual situations. Contact a financial and/or tax professional regarding your specific financial and tax situation. Please visit our terms of service for full terms governing the use this site.
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