Getting out of Debt: Which Debt Should You Pay off First?

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If you’ve racked up a lot of debt on your credit cards, you’re not alone. In fact, of the 90 million households in the United States that own at least one credit card, the average debt totals a whopping $10,691, according to

Many of these households are only paying the minimum payments on their credit cards too. If that sounds like you, here’s some food for thought: If you carry the average credit card debt of $10,691 and only pay the minimum payments each month, it will take you nearly 33 years to pay off your balances completely.*

Clearly, the minimum payment method is not a great way to manage your debt. It’s time to start paying down your balances and rid yourself once-and-for-all of that perpetual black cloud. But where do you start?

If you have several credit cards – and many of us do – it’s smart to devise a payoff plan. There are two ways to do this that are widely talked about, each of which focus your energies on a single debt, while paying just the minimum payments on your other debts.

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Keep in mind that these strategies will work for all of your debt, including auto loans, student loans and home loans, but for the sake of keeping it simple, let’s concentrate on credit card debt:

Focus: Highest Interest Rate

The first approach is to concentrate first on the credit card with the highest interest rate. If you’re not sure what your interest rates are, check your credit card statements or make a quick call to your credit card companies.

By focusing on the balance with the highest interest rate first, you’ll save the most money in interest in the long run. Make a list of your credit card debts in order of highest interest rate to lowest interest rate. When you’ve paid off the balance with the highest rate, check it off the list and move on to balance with the next highest rate.

While you’re focusing on a single card, make sure you’re also paying the minimum payments on your other credit cards. “Payment history,” or how reliably you pay your debt on time each month, has the largest impact on your credit score. Even a single late payment can take a toll on your score.

Not sure what your credit score is? You can take a peek at your credit score for free – plus your credit report – at

Concentrating on the highest interest rate first, then moving down the ladder, is the soundest strategy financially, but often takes a lot of patience. If you think you need a little extra motivation and the benefit of small wins along the way, the next method might be better for you.


Focus: Lowest Balance

The second approach is to focus on the credit card with the lowest balance first.  If you’re a fan of financial author Dave Ramsey, this method may sound familiar; he calls it the “Debt Snowball Plan.”

By concentrating on the debt with the lowest balance, you’ll get to experience small successes more quickly with each credit card that you pay off. This method will help you to build momentum – like a snowball rolling down a hill – and for many people, helps keep the motivation to stick with it.

Similar to the first strategy, you’ll want to make a list of each of your credit card debts in order of smallest balance to largest balance. When you pay off the card with the smallest balance first, check it off the list and apply your available funds to the next smallest balance. Again, don’t forget to also pay the minimum payments each month on your other credit cards.

The Debt Snowball is for those who have a hard time mustering and maintaining the motivation to pay down their debt. While you’ll likely pay more money in interest over the long-term with this approach, the psychological boost you’ll gain may be just what you need to succeed in becoming completely debt-free.

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Ultimately, the method you choose to pay off your debt is less important than getting started… right now. If you have a lot of debt, it will take time, patience and continued commitment to become completely debt-free, but the freedom you’ll experience by doing so is entirely worth it. Take it from me, two years debt-free and loving it.

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*Assumes minimum payment of 2 percent and an average interest rate of 14 percent.