Back to all articles

Which Debt Should I Pay off First?

We'll help you make a plan with some payoff strategies.

This is one of those great questions to which there is no wrong answer. At the end of the day, it really comes down to how well you know yourself.

According to Experian, the average amount of total debt carried by an individual in 2020 reached $92,727.
So if you’re in debt, you’re not alone. It can start as simply as running short one month and paying only the minimum amount due on your credit card bill. Before you know it, you’re covered under a blanket of debt. However, there are ways to shovel out. That's why we're here!
 
With both strategies below, you still have to make the minimum payment on all your debts, of course. The difference is the order in which you pay off your debts with additional funds. Typically, these strategies leave out mortgage loans, although if you have one, it’s probably your largest debt.
 

Strategy #1: The Debt Avalanche Method

 
Why “avalanche”? With this strategy, you pay off the debt that has the highest interest rate first, then tumble down to the loans with lower and lower rates, until you reach DebtZero. As an example, if you were carrying the following loan amounts, you would list your loans in this way and pay off your credit card balance first:
 
Credit Card Balance            $19,713 @ 16.25%
Auto Loan                            $13,823 @ 10.75%
Personal Loan                     $21,702 @ 10.25%
Student Loan                      $18,307@ 4.75%
 
This is the strategy for you if:
  • You have good self-discipline and are fully committed to becoming debt-free
  • You’re patient and are good at keeping the long-range goal in mind
  • Your most important goal is paying the lowest amount of interest possible
 

Strategy #2: The Debt Snowball Method

 
Why “snowball”? This strategy is based on loan amounts, not interest rates. With it, you begin paying off your debt that has the lowest balance first. As your motivation snowballs, you roll up to the next loan and pay it off, until you reach DebtZero. If you were carrying the same loan amounts above, you would list your loans from the smallest to largest amount owed and start by paying off your auto loan first:
 
Auto Loan                            $13,823 @ 10.75%
Student Loan                      $18,307@ 4.75%
Credit Card Balance            $19,713 @ 16.25%
Personal Loan                     $21,702 @ 10.25%
 
This is the strategy for you if:
  • Seeing quicker results is key to keeping you motivated
  • Having fewer debts will enable you to stay laser-focused on the next goal
  • Paying a bit more interest in the long run doesn’t bother you
 

Stay motivated and be patient

Each strategy has its champions and opponents who are quick to give the other strategy the cold shoulder. However, both can be very effective! Ultimately, the Avalanche Method results in less accumulated interest and quicker payoffs, but the difference is small. Whichever method you choose, you’ll be sure to add some cold, hard cash to your savings!
 
View all blog posts under category Learn View all blog posts under category 2021 View all blog posts under category Debt Avalanche Method View all blog posts under category Debt Snowball Method View all blog posts under category Learn View all blog posts under category pay off debt View all blog posts under category strategies to become debt free

Recommended for you

Check out our Financial Education Center!

Access a variety of tools and tips for every stage of your financial journey. Our interactive lesson topics range from credit scores and reports and debt management to building emergency savings and 401k plans.