Repaying Your Debt: Set Priorities | CreditShout

Repaying Your Debt: Set Priorities

By Kevin / December 8, 2016
prioritizing debt


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It can be extremely difficult to pay off your debt when you don’t know where to start. This is why we recommend setting priorities in tackling your debt.

Prioritizing your various debts is a great place to begin to get debt-free and will also help you save the most money while you pay down what you owe. Additionally, Prioritizing is simple. All you need to do is take a good look at your debt and decide what’s important.

Step One: Debt Snowball vs Debt Avalanche

The first step is oind out which is more important to you — a high balance or a high interest rate.

Debt Avalanche Method

One of the best ways to pay off your debt is to save money while you do it by avoiding as much interest as possible. If you have a credit card with a $500 balance and a 29.99% interest rate, it may be more urgent to pay than a $1,400 balance with a 8.29% interest rate.

The reason is simple: with the smaller balance, you’re paying an extremely high interest rate and most of your monthly payment is going to the interest, not the principal.

By paying this balance off first, you are saving the most in interest. This leaves you the maximum possible available for paying off the principal balances of your other debts going forward.

That is why this is called the Debt Avalanche Method. Each month, you are building up to where a greater and greater percentage of your payment is towards principal, until, finally, you have a zero balance.

Debt Snowball Method

You can also take a look at the debt amount.

The $500 credit card is much easier to get rid of than the $1,400. Meaning you’ll be eliminating one debt sooner.

The benefit of this method is the sense of accomplishment. And by eliminating one debt entirely, you will be able to focus more on the remaining balances. That is why this is called the debt snowball method.

In general, we recommend always try to pay the balance that is costing you the most money first. But sometimes, getting started by taking down a small debt provides a great sense of relief that provides the snowball effect you need to transition to the avalanche method.

Step Two: Assess Payment Methods

Secondly, find out how much you’re paying on each account.

If payments are difficult to make on one account but easy on others, pay off the difficult card quickly to free up money each month.

Find out how much money you owe and what you pay on each credit card per month. This will help you find out which card is hurting you the most each month. Then you simply need to target the most troublesome card and pay if off first to free up more capital to help pay off the other card.

Step Three: Assess Your Needs

Lastly, consider which type of debt is most important to pay off first.

In general, credit cards have the highest interest rate with the worst terms. Loans like mortgages and student loans usually have the lowest interest rates. Car loans, on the other hand, can weigh you down with high interest rates and 5+ year terms.

When deciding which type of loan to pay off first, look at how much money you’re paying each month, the total you owe, and how much you’ll pay in the long run (by figuring your APR).

Chances are some loans are costing you thousands of dollars over a few years, while some may be costing very little. This is a great tactic to help you decide where to place your priority when paying off your debt.

Step Four: Create a Written Plan

When you have your priorities straight and have decided which debts to pay off first, write down your plan and put it somewhere you’ll consult frequently.

Write down a detailed plan with how much you want to put down each month to pay off your debt, along with the accounts you’re going to tackle first. Prioritizing your debt is the easiest way to get control of your finances and get rid of your debt by taking care of the most troublesome and costly bills first.

There are plenty of tools online to help you set debt repayment priorities.

The best way to figure out how much debt is costly you–and how quickly you can pay it off–is to use a debt calculator. has a range of calculators to help you get a hold on your finances, including What will it take to pay off my credit card and The true cost of paying the minimum.

The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone. Additionally, the opinions of the commenters are not necessarily the opinions of this site


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