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What Debt Do You Pay Off First?

Ready to pay off your debt? That’s amazing—we’re rooting for you every single step of the way. But before you get started, you’re probably wrestling with a pretty important question: Which debt do you pay off first?

You might think starting with the debt with the highest interest rate is your best plan of attack. And most financial “gurus” out there would probably agree with you. But we’re not one of them.

You need a plan that works—not one that’ll have you spinning your wheels. Keep reading to find out the best way to pay off your debt fast.

Which Debt Should You Pay Off First?

Let’s cut straight to it: If you’ve got multiple debts, pay off the smallest debt first. That’s right—most “experts” out there say you have to start by paying on the debt with the highest interest rate first. And while that’s one way to pay off debt, it’s definitely not the best (or fastest) option. Why? It’s all about momentum.

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When you’re chipping away at debt the size of Mount Kilimanjaro, your momentum (and your motivation) can lose steam over time. You need some quick wins to keep you going. That’s exactly what happens with the debt snowball method. You’ll build momentum and stay motivated as you collect small wins one by one. That’s why it's the fastest method out there! But more on that in a minute.

Quick Callout: If you owe the IRS any money (aka tax debt), you need to take care of that first—even if it isn't your smallest debt. Why? Because the government has the power to make your life pretty miserable until you pay up, and they can even take money straight out of your paycheck. So, make sure you're all squared away with Uncle Sam before you attack the rest of your debt.

Ways to Pay Off Debt

Let’s face it: No one loves being in debt. That’s why the best thing you can do is attack it with everything you’ve got. Here are some of the most common ways to pay off debt (and more reasons why the debt snowball is our favorite):

1. Debt Snowball     

Like we’ve said, the debt snowball method is the fastest way to pay off debt. Why is it called the debt snowball method? Because as you pay off your debts from smallest to largest, the amount of money you have to throw at each debt grows like a snowball rolling down a hill . . . getting bigger and bigger as it goes.

Before you know it, you’ve got a giant payment going toward your last and largest debt—and then just like that, it’s paid off. Cue the confetti cannons!

Here’s how it works:

List your debts from smallest to largest (regardless of interest rate). Pay minimum payments on everything but the smallest debt. Throw as much money as possible toward the smallest until it’s paid off. When it’s gone, roll what you were paying on that debt into the payment on your next-smallest debt until you knock it out too. Repeat until you’re completely debt-free!

The beauty of the debt snowball method is the excitement and motivation you gain when you see a zero balance on those first few debts you pay off. What a rush! As that snowball continues to gain speed and momentum, you’ll feel unstoppable—and you’ll do everything you can to throw as much money as possible toward those remaining debts. Who knew paying off debt would feel this good?

2. Debt Avalanche

The debt avalanche method is where you pay off your debt with the largest interest rate first. A lot of people believe this is the best way to attack their debt because they’re worried the interest rate is killing their pocketbooks.

But here’s the thing: This debt payoff method is grueling. Often, the debts with the highest interest rates also have pretty large balances attached to them. And when you throw $2,000 at a $25,000 debt. . . the balance is still a whopping $23,000. When we say using the debt avalanche method is slow, we mean S-L-O-W. It’s like trying to eat Chinese food with toothpicks (it’s going to be a long and painful process). That kind of frustration will steer you right off course.  

Here’s how it works:

With the debt avalanche method, you order your debts by interest rate, with the highest interest rate first. You pay minimum payments on everything while attacking the debt with the highest interest rate. Once that debt is paid off, you’ll move to the one with the next-highest interest rate . . . until all your debt is paid off. Just remember: You’ll need a lot of endurance if you have crazy big debts to get through before you can pay off the smaller balances.

3. Debt by Type

Paying debts by type means you order your debts based on each specific lender—and it can get pretty confusing. Not only that, but there’s no momentum factor. For instance, let’s say you have federal student loans, private student loans and a credit card. You might prioritize your credit card (because it has a high interest rate) followed by your private student loans and then your federal student loans. Sound a little confusing? That’s because it is. You’re essentially prioritizing your loans based on either interest rates or how strict the lender is with deferments and forbearances—but there’s no real rules here.

Here’s how it works:

You might start with a $6,000 credit card debt and then jump to a $30,000 private loan, and end with a $16,000 federal loan. Basically, the order is up to you because there’s no rhyme or reason with this payoff method. But without a real plan of attack, you don’t know which debt to prioritize and why—which means you’re more likely to lose focus and momentum.

Debt Payment Methods to Avoid

When you’re ready to put your superhero cape on and start attacking your debt, there will inevitably be some bad guys who try to distract you from your mission. These methods may seem innocent at first, but they’ll send all of your motivation and momentum back to ground zero. Here are a couple of bad debt payment methods to watch out for:

Balance Transfer

This one is tricky. At first, it seems like a great idea—transferring all your debt from one high-interest loan or credit card to another with a lower interest rate. But don’t do it. It’s a trap! When you do a balance transfer on your loan (or any kind of debt), you’re tricked into believing you’ve actually done something with your debt.

While you might save a little money with a lower interest rate, you’ll also pump the brakes on your motivation. A lower interest rate means a lower monthly payment. That means you’ve got a little extra money in your budget . . . and you get to choose to put it toward your debt or to spend it. Most people choose the latter and don’t make any real progress toward paying off their debt faster.

Don’t mess with a balance transfer. Instead of getting tricked into believing you did something with your debt, why not actually do something to get rid of it instead?

Consolidation

Another bad debt payoff method is debt consolidation. This one is just as bad (maybe even worse) than a balance transfer. With debt consolidation, the goal is to combine all of your loans or debts into one single loan with one interest rate. Instead of paying five monthly payments on five different debts, you’ll have one big payment on one big debt. That doesn’t sound bad, right? Don’t get too excited.

With debt consolidation, the hope is that you’ll land a low interest rate. But that’s not always the case. And on top of that, the repayment terms get pushed back. So while you may have one nice clean payment, you’ll be paying on it for a long, long time. No thank you.

The Best Way to Pay Off Debt

We said it before, and we’ll say it again: The best way to pay off debt is with the debt snowball method—paying off the smallest debt first. Remember, the best plan of attack is the one that allows you to build momentum (and excitement). When you pay off that smallest debt, there’s no stopping you from racing to pay off the next . . . and the next . . . and the next. Who’s stopping you from putting on that superhero cape and attacking that debt with everything you’ve got?

Listen, don’t get sidetracked by the other methods out there. They’ll have you going at a snail’s pace, and then distract you from your mission in the first place.

When it comes to paying off debt, the best thing you can do is follow a plan. A plan that will show you how to pay off debt, save for emergencies, budget, and win with money. That plan is Financial Peace University (FPU).

FPU is a nine-lesson course you can take in person or online with people who are on the same mission: attacking their debt with everything they have. When you’ve got a community of people cheering you on, there’s no stopping you!

Get this: The average household pays off $5,300 in debt within their first 90 days of following the plan. Sign up for FPU and start winning with money today.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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