How to Decide Which Debt to Pay Off First and Save Money
Do you have different debts like credit cards, car loans, or student loans? It can feel confusing to know which one to pay first. But here’s the good news: if you make a plan, you can save money on interest and get out of debt faster.
As a money expert, I’ll show you how to figure out which debts to tackle first, how to avoid hidden fees, and how to grow your financial confidence.
Step 1: List All Your Debts
Write down each debt you have, including:
Balance (how much you owe)
Interest rate (how much the bank charges you)
Minimum monthly payment
This makes it easier to see the big picture and know where your money goes.
Step 2: Choose a Payoff Strategy
There are two popular strategies:
1. Highest Interest First (Debt Avalanche)
Pay off the debt with the highest interest rate first.
Makes the most sense if you want to save the most money over time.
Example: Credit card at 20% interest vs. car loan at 5% → pay the credit card first.
2. Smallest Balance First (Debt Snowball)
Pay off the smallest debt first.
Gives quick wins and keeps you motivated.
Example: Pay off a $500 store card before a $5,000 student loan.
👉 Tip: You can combine strategies—start with a small win to feel motivated, then tackle the high-interest debt.
Step 3: Make More Than the Minimum
Paying only the minimum keeps you in debt for years. Even an extra $20 or $50 a month toward your target debt can save money on interest and help you become debt-free faster.
Step 4: Avoid New Debt
While paying off debt, try to avoid adding new debt. This means:
Stick to your budget
Use cash or debit cards instead of credit cards
Pause unnecessary loans or store financing
Step 5: Celebrate Your Wins
Every debt you pay off is a step toward financial freedom. Track progress, celebrate small wins, and let that motivate you to tackle the next debt.
Bonus Tip
If you are a current homeowner and have equity in your home, SOMETIMES it makes sense to restructure your debt, use the equity in your home at a lower interest rate to pay off high-interest rate debt. This could save hundreds of dollars each month depending on how much debt you owe. It can help you catch up and breathe but I will always recommend continuing to use the extra money each month to pay down the equity loan until you are debt free!
Final Thoughts
Paying off debt doesn’t have to be scary.
List all your debts
Pick a strategy (highest interest or smallest balance first)
Pay more than the minimum
Avoid new debt
Celebrate your wins
Even small steps now will save you thousands in interest and help you feel in control of your money.
✅ Action Step: This week, make a list of your debts and pick which one you will focus on first. Even one extra payment can make a huge difference!
FAQs
1. Should I pay off high-interest debt or small debts first?
It depends on your goal:
High-interest first (debt avalanche) → saves more money
Small debt first (debt snowball) → motivates you with quick wins
2. Can I pay off multiple debts at the same time?
Yes! Make minimum payments on all debts, then put extra money toward your target debt. This method works with both avalanche and snowball strategies.
3. How much extra should I pay each month?
Even $20–$50 extra on your target debt helps reduce interest and shortens your payoff time.
4. Should I pay off student loans before credit cards?
Usually, yes—credit cards have higher interest rates than student loans, so paying them first saves more money.
5. Is it okay to take out a loan to pay off debt?
Be careful—this can work only if the new loan has lower interest than your existing debt. Otherwise, it may cost more.
Need more help or have specific questions?
Send me an email, I’d love to help stephen@stewardshipcapital.co
