Which Debts Should You Pay Off First?

Which Debts Should You Pay Off First?

Reading Time: 3 mins

Face it—we live in a society that encourages you to take on debt.

In our youth, applying for a student loan is a rite of passage while for many taking on a car loan or mortgage is the only way they’ll ever own an automobile or home.

Then there is revolving credit— lines for those with respectable credit scores and unsecured personal loans for individuals seeking lending alternatives. And, of course, credit card debt is the only other sure thing in life besides death and taxes.

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We can talk about the type of debt you’re facing until everyone’s blue in the face. The pressing question for people with multiple debts is—which should you you start paying down first?

Today, we’ll examine this tricky question—and help you work your way through your debts.

Should You Pay Off the Highest Interest Debt First? 

You might get annoyed with the caveats we’ve included here; however, hard and fast rules rarely exist in this world. With that said, debts with a high-interest rate should be paid off ASAP and prioritized—in specific situations. Should the costd prove too high, the interest could pile up and send you into a debit spiral toward bankruptcy.Note that the extra money saved from paying off high-interest debt can be put toward other debts. Still, this option isn’t always available. Nor is it the wisest strategy for everybody.

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For instance, high-interest debts with lengthier terms might make you feel as though you’re making no progress since they take forever to pay down. This might halt your financial momentum. In this case, your best approach might be captured in our next set of recommendations.

Should You Pay Off The Smallest Balance First? 

The small wins theory says that, to stay motivated, you need frequent wins. The way to do that is by setting simple goals. Little by little, your motivation will improve—and you’ll see your goal a little closer on the horizon.

Look at it like this: paying off your smallest debt first is akin to making your bed or quickly wiping down a counter when your house is a mess, and you need to do a full cleanup. It’s straightforward, and you can see the progress.

Suddenly, the path becomes more transparent toward becoming debt-free, and you can focus squarely on more expensive monthly payments. However, much like paying off your costlier debts first comes with its pitfalls, so does focusing squarely on knocking off the more manageable debts.

You might get too wrapped in your less significant payments and sink your finances and savings by paying too much in the way of long-term interest. You’ll need to strike a balance.

Decide On A Strategy: Choose Which Debt To Pay Off First

The key takeaway from the above two sections is that there’s no magic bullet for successful debt management. Realistically, you need a well-rounded, insightful strategy that pinpoints the precise payments you should prioritize for your long and short-term financial betterment.

Naturally, balance is vital. Often, it’s wise to pay off smaller short-term debts before they pile up into something more concerning. All the same, you should pay special attention to high-interest debts, so they don’t ruin your finances.

From there, it’s up to you to choose what works best for you and your current budget—either knocking off the small or more significant debts with high interest.  Another sound approach  is—provided you have credit cards with the same interest—paying the smaller balances first and slowly working toward your target.

There’s one last consideration that has the potential to pay tremendous dividends. Investigate which loans provide tax-related savings (eg home equities, second mortgages, home equity loans) and place them at the end of the list. These all generally share favourable interest rates.

Regardless of your decision, your objectives and debt payment plan must be feasible for you to accomplish. Never waiver from this plan. Meaning that you must dedicate extra money to paying off your most substantial debts.

Plus, when you have the funds available, make additional payments on other debts, or even increase your monthly payment.

Consider Debt Consolidation Options To Save 

Remember how we discussed caveats earlier?

Well, here’s another one:Prioritizing your payments and comprising a thoughtful plan is insanely challenging, especially if you’ve accrued a heavy debtload.

Simplify this process and streamline your plan with a debt consolidation loan. When you travel down this financial avenue, your many lingering debts turn into one easy-to-manage debt. Generally, these loans are available at credit unions, traditional financial institutions (e, banks), and online unsecured lenders.

In many cases, debt consolidation loans save you money in the long run. Many consolidators will pay off higher interest loans and charge you a more affordable rate.


Paying debts, no matter how many you’re facing, doesn’t need to be stressful. All it takes is sound payment planning and management habits, and you’ll find yourself on the pathway to financial freedom.

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