What Debt to Pay Off First: A Simple Way to Decide What’s Best

By Jackie Beck   Updated 05/19/2021 at 4:41 pm

Wondering what debt to pay off first? Once you’re ready to go beyond just paying minimum payments on each one, typical reactions are to either try to pay just a little bit more than the minimum to all of your creditors, or to try to decide which way will save you the most money.

In other words, we try to figure out what debt to pay off first based on logic. Unfortunately, that can be complicated, unless you owe the IRS. (In that case, they should probably top your list.)

Worse, trying to figure out what debt to pay off first based on logic isn’t necessarily effective, because borrowing money is rarely logical.


So instead, think about two things in making your decision about what debt to pay off first:

  • Which debt would be easiest to pay off first?
  • Which debt would you feel happiest about seeing gone?

Easiest is going to be the one with the lowest balance, simply because there’s less of it. Most people who are struggling with debt WILL do better by paying the lowest balance debt first. Don’t underestimate the importance of continuing to paying off debt.

Put your debts in order from smallest to largest and get rid of the first one as fast as you can. When you’re done, put that money toward the next debt in your list.

This is the traditional approach to paying off debt. It’s very effective, because people are motivated by feelings. They feel great when they get rid of that first debt, and so they keep going!

Logic really doesn’t play into it.

Why logic matters least when it comes to which debt to pay off first

Think about how you got into debt in the first place. Chances are, it’s because you wanted things, and didn’t want to wait until you had the money to pay for it.

For example, none of these behaviors are logical:

  • Your pet gets sick and requires expensive medical treatment. You pay for it with debt because of course you love your pet.
  • You decide that you “need” a new car, right now, even though your old one could be fixed for a few hundred dollars. So you trade it in on a new one and end up with years of car payments.
  • You go out to eat with your friends, but use a credit card since you don’t get paid for another two weeks.
  • You hate having company over because they’ll see your mismatched furniture or empty rooms in your house — the house you bought before you were financially ready, because “everyone” was buying a house at your age. So you take advantage of a 90 days same as cash offer to fill it with furniture.

Note that I’m not saying there’s anything wrong with helping your pet, getting a new car, eating out, buying a house or furniture, or any number of things you could do with your money. IF you can afford to do so.

Also, chances are (like me and every other human) you rationalize a lot of things. It’s easy to confuse wants with needs.

Rationalizing vs. reality

For example, most of those probably felt like needs, but realistically they were not. (Rationalizing something as a need doesn’t mean it’s actually true. It just means you’ve made your brain align with what you wanted emotionally.)

If you had been logical, you wouldn’t have gotten a pet you couldn’t truly afford to care for in the first place. (Maybe you’d pet sit or help out in a shelter instead.) You would have fixed the car, stayed home from dinner because you didn’t have the money, shut the door to the empty room or not cared what your friends thought, and rented until you were really ready to buy.

Instead, you borrowed money and agreed to pay extra for the privilege. Logic wasn’t a factor in getting into debt, and it’s not going to be the biggest factor in getting out.

But, what about….

Is there a particular debt that’s really weighing on you emotionally? That’s where the question about “which debt you would feel happiest about seeing gone” comes into play.

Maybe you owe your parents $1000, and every time you see them you feel like crap. In fact, you go out of your way not to see them any more, and it’s ruining your relationship.

If you’re sick at heart over a particular debt, consider putting that at the top of the list when it comes to what debt to pay off first. Just be sure your feelings are strong enough to carry you through to completion.

Remember, a huge part of how to get out of debt is changing your behavior for good. And your behavior starts with your emotions. Not logic. We are not Spock.

If you’re still not convinced about what debt to pay off first, let’s talk numbers

Worried about it “taking longer” if you start with the lowest balance instead of the highest interest rate? Do the math for your exact situation. (Or have my debt payoff app do it for you.)

For example, here’s one situation:

I’m not sure which debt to pay off first. I have several debts with various interest rates and minimum payments. I’m making all of the minimum payments right now, and have about $150 a month extra that I could put toward debt. I also have $4000 in savings that I could use to pay something off right now. What would you pay off first? And what order would you pay them off in?

The debts were:

$6350 credit card at 12.77%, $243/mo
$2100 credit card at 16.9%, $84/mo
$1680 credit card at 18.9%, $67/mo
$14,210 student loan at 2.49%, $134/mo
$7523 student loan at 3.25%, $84/mo
$24,860 student loan at 6.375%, $250/mo
$1290 student loan at 6.8%, $90/mo

And here’s how long it would take to pay them off:

If you pay them down from highest interest rate to lowest, it’d take you 4 years and 7 months to be debt free. (Assuming you never found ways to send in extra beyond the snowball that whole time, which is unlikely.) If you pay them down from lowest balance to highest balance instead, it’d take you 4 years and 8 months.

A month’s worth of interest on what will by then be a very low balance is not worth agonizing over. Just pick one that feels right to you and start chipping away at it. Then stick with it until they’re all gone. Sticking with it is what matters most.

Along with getting started.

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