Table of Contents

Introduction

How to prioritize paying off debt can seem overwhelming, but it is an important step to becoming debt-free. By developing a strategic repayment plan and focusing on clearing high-interest debts first, you can pay off what you owe faster and reduce the total interest you pay. Here are some tips for prioritizing how to prioritize paying off debt:

Understand the Debt Snowball and Avalanche Methods

Two popular methods for approaching how to prioritize paying off debt are the debt snowball and debt avalanche.

The Debt Snowball

With the debt snowball method, you focus on paying off your smallest debts first. Here’s how it works:

List all of your debts from smallest to largest balance.
Make minimum payments on all debts except the smallest.
Put as much money as possible towards the smallest debt until it’s fully paid off.
Move to the next largest debt and repeat.

The debt snowball method helps build momentum and gives you ‘quick wins’ as you pay off each balance. However, it may cost more in interest overall.

The Debt Avalanche

The debt avalanche method focuses on paying off high-interest debt first. Here are the steps:

List your debts from highest to lowest interest rate.
Make minimum payments on all debts except the one with the highest interest rate.
Pay as much as possible toward the debt with the highest interest.
Repeat with the debt with the next highest interest rate once the first is paid off.

The debt avalanche may cost less in interest over time compared to the snowball, but can take longer to gain momentum.

Assess Debts by Interest Rates and Balances

To determine the best approach for how to prioritize paying off debt, review all of your debts and their details:

Balance – The total amount you currently owe on each debt.
Interest rate – The annual percentage rate (APR) charged on each balance. Higher rates mean more interest fees.
Minimum payment – The lowest payment allowed per month for each debt.

Gather the most recent statements from all of your accounts to fill in this information. Online accounts and apps may also show these details.

Rank Debts For Repayment

With your full debt picture in front of you, you can strategically rank and prioritize repayment.

If going for quick wins, list debts from smallest balance to largest to plan a debt snowball. If minimizing interest paid, sort from highest APR to lowest for an avalanche.

Debt Type	Balance	Interest Rate	Minimum Payment
Credit Card 1	$1,200	14.99%	$35
Credit Card 2	$3,500	11.99%	$60
Car Loan	$8,000	5.99%	$200
Student Loan 1	$15,000	6.80%	$100
Student Loan 2	$10,000	4.66%	$150

In this example, Credit Card 1 has the smallest balance. Tackling this first is the debt snowball approach. Listing by interest rate, the credit card with the highest 14.99% APR is first for the debt avalanche.

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Make a Debt Repayment Calendar

To stay on track with how to prioritize paying off debt, make a repayment calendar you can follow each month. List out all minimum payments due and schedule any extra payments.

Having a written calendar to follow makes it easier to stick to tackling your debts systematically. Online debt calculators can also generate customized repayment calendars.

Stick to Your Budget

A tight budget is key to having funds to put toward debt repayment. Track your spending to trim expenses where possible, freeing up more money to go toward debts.

Be sure to account for essential costs like housing, food, utilities, and transportation in your budget. Cutting discretionary spending on dining out, entertainment, and other non-essentials can help find extra repayment funds.

Increase Your Income if Possible

Bringing in more income gives you more money to dedicate to repayment. Options to earn extra include:

Getting a side gig: Start freelancing, drive for a rideshare app, or take on a part-time job with flexible hours.
Asking for a raise: If you have taken on more responsibilities at your job, negotiate a higher salary.
Selling unused items: Have a yard sale, sell online, or trade-in unused electronics, games, etc.

Even an extra $100-200 per month can make a difference in how to prioritize paying off debt.

Automate Payments and Monitoring

Set up automatic payments through your bank or creditors to ensure on-time monthly payments, helping avoid late fees. Automatic withdrawals on payday work well.

Also utilize apps and online accounts to monitor balances and interest charges in one place. This helps spot any errors and track repayment progress.

Get Help from Non-Profits

Non-profit credit counseling services like NFCC offer free or low-cost assistance managing debt and creating a repayment plan. They can help consolidate debt with lower interest rates.

Debt management programs through non-profits work directly with creditors to potentially waive fees, reduce interest rates, and lower monthly payments to fit your budget.

Consider Debt Consolidation Carefully

Debt consolidation rolls multiple debts into one new loan with a lower monthly payment through a bank or online lender. This can simplify repayment but may have high fees and still accrue interest.

Consolidation loans don’t erase debt and need to be repaid. Weigh the costs and risks carefully and have a repayment plan in place. Non-profit consolidation may be an alternative option to reduce interest.

Know When to Seek Professional Help

If you are struggling with minimum payments or see no end in sight to become debt-free, it may be time to seek professional support.

Credit counseling services can help assess your situation and offer debt management guidance specific to your needs.

If your debt load is simply too high to realistically pay back, you may need to explore options like debt settlement or bankruptcy. Speaking to a bankruptcy attorney can provide clarity on finding the most suitable debt relief option.

Maintain Financial Discipline

Successfully getting out of debt requires discipline and commitment to your repayment plan. Avoid taking on new debt before old debts are paid off. Ongoing monitoring, budgeting, and reassessing your approach will help you stay on track as you work toward becoming debt-free.

The key to how to prioritize paying off debt is reviewing your full financial situation, creating a repayment strategy, and sticking to it. Pay off high-interest debts first when possible and explore ways to increase income to accelerate repayment. With focus and discipline, you can take control of your debt and payments.