Getting out of debt doesn’t happen overnight, but having a clear plan can make it feel less overwhelming. If you’re juggling credit cards, loans, or other types of debt, knowing what to pay off first can help you save money and stay motivated. This guide explains two popular ways to prioritize debt repayment and offers tips to help you choose a strategy that fits your situation.
Know What You Owe
Before choosing a strategy, you need a clear picture of all your debts. Make a list that includes the balance, interest rate, and monthly payment for each one. Understanding how different types of debt work will help you decide where to focus first.
Types of Debt to Consider
High-interest debts: These include credit cards, payday loans, and personal loans. Because they often carry high rates, they can grow quickly if not paid off soon.
Low-interest debts: These may include student loans or mortgages. Although they still need to be paid, their lower rates and longer terms usually make them less urgent.
Secured debts: These are tied to assets, such as a mortgage or car loan. Missing payments could put your home or vehicle at risk.
Unsecured debts: These include credit cards, medical bills, or personal loans not backed by collateral. They can still lead to collections or lawsuits if left unpaid.
Popular Debt Repayment Strategies
Once you understand your debts, the next step is to choose a strategy to pay them down. Two of the most common methods are the debt snowball and the debt avalanche. Each approach offers different benefits depending on your goals and personality.
Debt Snowball Method
The debt snowball method focuses on paying off your smallest debt first, regardless of the interest rate. Once that debt is gone, you move to the next smallest, and so on.
How it works: Make minimum payments on all debts, but put any extra money toward the debt with the smallest balance.
Why it helps: You get quick wins that can keep you motivated.
What to consider: You may pay more in interest over time, but the momentum can be worth it.
Example
You owe $500 on a credit card with 20% APR, $2,000 on a student loan with 5% APR, and $4,000 on a car loan with 8% APR. With the snowball method, you pay off the $500 credit card first, even though it has the highest interest rate.
Debt Avalanche Method
The debt avalanche method focuses on interest rates instead of balances. You pay off the debt with the highest rate first to save the most money.
How it works: Make minimum payments on all debts, but put extra money toward the one with the highest interest rate.
Why it helps: This method saves more in interest and can shorten your repayment timeline.
What to consider: It might take longer to see progress, especially if your highest-rate debt also has a large balance.
Example
With the same three debts, the avalanche method would also start with the $500 credit card because it has the highest APR. But if the highest-rate debt had a larger balance, you would stick with it until it’s gone, even if smaller balances could be paid off faster.
Choosing a Strategy That Fits
Both methods can work well. The best one for you depends on how you stay motivated and what matters most: saving money or seeing fast results.
If you need motivation from quick progress, start with the snowball method.
If you’re focused on cutting costs and can stay patient, the avalanche method may be better.
Some people combine both methods. They start with snowball to build momentum, then switch to avalanche to save on interest.
The most important thing is to start. Once you pick a strategy, you can make steady progress and adjust along the way if needed.
Making Your Plan Work
No matter which strategy you choose, the key to success is following through. Building a realistic plan and using the right tools can help you stay consistent and make steady progress.
Build a Budget That Supports Your Goal
Start by reviewing your income and expenses. Look for ways to cut back on non-essential spending so you can put more money toward your debts. Even small changes, like canceling unused subscriptions or cooking at home more often, can free up extra funds.
Set aside a specific amount each month for debt payments. Make sure it fits your budget so you can stick with it over time.
Use Tools to Stay on Track
Apps like Undebt.it and Tally can help you organize your debts and track your progress. Many of these tools also let you compare strategies, schedule payments, and see how long it will take to reach your goal.
Whether you use a spreadsheet, an app, or a paper notebook, staying organized makes it easier to follow your plan.
Wrapping Up
Paying off debt takes time, but starting with a plan can make the process more manageable. Whether you choose the snowball method for faster wins or the avalanche method to save on interest, both strategies can help you move forward.
Pick the approach that works best for your situation, stick to your budget, and use tools that make it easier to stay on track. With steady effort, you can reduce your debt and feel more in control of your finances.
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