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

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Get out of Debt with a Payment Plan

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.

[Free Resource: Check your free credit report and score]

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.

For more tips and tools to help you manage your home, money and credit – including the most affordable credit monitoring on the web and complete identity theft protection – visit

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

  • SailboatFamily

    Long before Dave Ramsey was popular, and we were in $76K worth of debt, we invented our own method. The method blends the two shared in the blog. We first did Lowest Balance, then we went after the Highest Interest, then back to Lowest Balance, then Highest Interest, and so on. This model was the perfect compromise for us between psychological and mathematical models.

  • Christine

    I have heard the “Highest Interest Rate” approach over and over again. Sounds like it should work, but doesn’t it actually make more sense to pay down the card that is accruing the highest monthly finance charges first? In other words, depending on the balance you are carrying, even if the card does not have the highest interest rate, it may still be costing you more than the card with the highest interest rate. Is that wrong?

  • Tintin

    The title of the article is a bit deceiving. What about medical debt, mortgages, car loans, etc.? Are credit cards a default ‘pay this first’ category, or is there another order for overall debt? I’d love to see an article that covers the overall picture.

  • k. garcia

    My husband and I just hit a very rough patch in the last 2 years, so we accured a bit of credit card debt (a little over 20,000$ on 3 credit cards). In the last year we have been using the lowest balance (pay off the lowest balance first with our tax return but still budgetting the same amount our minimum balace was and paying this on the others). We are down to 7,000$ on one credit card, which we are paying almost double our minimum payment on now (using our minimum payment from our other credit cards) and isn’t hurting our budget as we have been paying this the whole time anyways. It is a true stress reliever and we can’t wait to have this fully taken care of and be out of credit card debt.

  • LaTanya

    I paid the lowest debt first to start seeing immediate results. Paid medical bills last. Made impressive progress, according to lenders

  • Adam

    TinTin. One reason why this article focuses on credit card debt is because that is the form of debt that is crippling most Americans finances and quite frankly is the most preventable. Medical debt is unavoidable if you have crappy health coverage (if any at all. Auto loans and mortgages aren’t viewed as negatively because while they represent debt you also get something of an asset out of them. If you have trouble making those payments you have something to work with in order to help deal with it. Credit card debt doesn’t have any such assets attached to them to help you in case you have problems.

    The second reason why articles such as this one focuses on credit card debt is because as essentially unsecured loans, credit cards burden you with finance charges and interest rates much higher than other types of debt.

  • Mark

    Christine, IF you are paying monthly finance charges, then looking at it that way (pay the one costing you the most) does matter. However, no matter how much the debt, one should be paying at least the minimum (if possible) to avoid those charges, and one should never pay late, as those are fees wasted from the wallet too.

  • Preston

    I did it a little different.. I listed my banks from first to last in order of which ones I HATE THE MOST. That really got me motivated. I’m now done with Chase, Bank of America, Capital One, Citibank, American Express, and next month Fifth Third. It feels very liberating.

  • bloodbath

    What about combining CC debt onto a single card and making the largest monthly payment possible over the minimum. Then you won’t worry about missing payment on an individual card. (Good psychological relief).

    And NOT racking up MORE debt is what makes the plan really work well!

  • NiNi

    Can anyone provide advice as to the best way to pay off student loans?

  • ED Kennedy

    Paying off student loans is tricky… and depends GREATLY on your situation. A few things to look into. If you get a job working for a Federal, State, Tribal or Local Govt. and certian Non-profit groups, you could essentially get the remainder of your loans forgiven after 10 years of service and payments.
    There are also MANY programs out there for teachers to have their loans COMPLETELY forgiven, if you have an interest in teaching. A lot of states offer the reimbursement if you teach for a certain period of time in one of their areas on a “list” of low-income, or economically depressed areas of need.
    Beyond that, you could look into the new IBR (Income-based-repayment) plan which changes yearly with your income.(This plan requires you to consolidate your loans with Direct Loan Servicing through the Dept of Education) Or the ICR (Income contingent repayment)… whatever you choose, I HIGHLY recommend that you put your payment on an automatic monthly debit from a bank account… many lenders will give you credit on your interst rate if you pay on time for 6-12 months at a time.
    If you are really struggling and you can not afford even the IBR plan (which is the lowest payment available) then you could look into getting a job that could qualify as a full-time learning program… some paid internship jobs and training programs will count as being “in-school” and will allow you to request a deferrment.

  • EDKMommy

    Another word of advice on Credit Card repayment… Do NOT close out the accounts, this hurts your credit score tremendously! As a matter of fact, try to get as many cards as possible below 50% of the total credit available, this will help to raise your credit score which could essentially help you get another credit card with a lower interest rate than what you have now to transfer your current debt to. So if you have a $5,000 limit, attempt to get the balance below $2,500 on as many cards as you are able to. You can also re-negotiate your interest rate with your current company if you continue to make payments on-time for anywhere from 6-12 months in a row. Just remember, it takes TIME to get out of any debt situation, don’t expect miracles from yourself! But set clear goals and celebrate the little things :-)

  • Ricardo

    All above are real very iluminating but we was paying the mininum in all our credit cards balance but currently our incomes came down and currently it isn`t sufficient to continuing paying some of them so what do you recomend us to do in order to keep our credit score in a good range ?. Thanks.

  • Marion

    I often wondered about having a savings account when my kids are applying for financial aid for college. Should I pay down all my debts using my savings account, so that my savings is practically zilch so that financial aid will be higher? I have a $250K equity loan account that I can use if needed. My husband wants to keep the savings high just in case, but does it work against us to not pay off bills?

  • Jerry

    Makes sense telling people to keep credit card accounts open. They did such a good job of managing them the first time around. Pay the stupid things off. Keep one for emergencies until you have 6-12 months of living expenses (this doesn’t take much when you pay off all of your non-mortgage debt and only have to cover food, shelter, utilities, gas, and insurance.). Then close the last credit card.

  • Lee

    I have about $30,000 of credit card debt, with excellent credit. I am thinking about just not paying on them. Yes, I know my credit score will be hurt, but I already own a home (paying a mortgage) and and an automobile (paid off). What will be the side effects to me if I dont pay on my credit cards to ease my monthly expenses? (besides the credit score) Will it be more of a burden on me to try to pay them off for years and years or not pay them at all? What would you do with this level of credit card debt?

  • Duncan

    My focus in paying off debt is to get to 1 payment. So I focus on the lowest balance as it does feel great when you send in that final check and it is paid off and can be forgotten. There are exceptions to this, if you have a 15k balance with a 20% interest rate then absolutely do everything you can to pay that sucker off or transfer it to a lower rate.

    As to leaving credit cards open.. having too much AVAILABLE credit can also hurt your score.

  • Bridget

    @Lee, be an adult and take responsibility for the debt you got yourself into and just pay your credit cards. I was close to $30,000 in debt and all I could afford for a while was the minimum payments. If you ever need a new car loan or want to refinance that house or move to a new one, not paying off your cards will cause you huge headaches.

  • Elliander

    I got credit cards more than 5 years ago with the specific plan to establish credit history to eventually own a home. I worked hard, intentionally building up debt, and learned from the way certain balances impact my credit score. Oddly, having a credit card completely paid off seems to lower my credit score about as much as having it maxed out. However, since I never in my entire life have ever been late on any kind of payment and always paid more than the minimums my credit score was essentially perfect. When I finally got my Mortgage I was only one point too low for a 4.5% fixed rate. So I ended up instead with a 5.5% fixed rate. I tried to gain that point through rapid pay off but it instead went down 2 points so I decided to settle for the 5.5% for now and plan to refinance next year. As I pay off my credit cards, I have to follow a more gradual strategy in order to raise my score. Since my goal is credit score over interest being paid, I pay down the largest card first down to about 40% then do the same with the other. And I avoid taking any additional lines of credit. I closed my third credit right after I got the mortgage and I will probably just keep the remaining 2 credit cards at 40% owned vs. maximum balance, and just have them paid off when I refinance the house. Since I won’t be as concerned about credit score once I get the lower Fixed Rate interest I’ll just cut them then. And then put a freeze on all my credit scores just to make sure I am never a victim of fraud. (even without fraud, it is always a bother when a credit card company reports my address wrong)

    Also, I never got one of those cards that require me to pay them every year. They always seemed like non-sense, even before I had the established history. Since all I pay on the cards is interest it all works out for me.

    For my Mortgage, I actually made another smart choice: Instead of buying a new homes, I went for a 130 year old Victorian house that was about to be demolished. I negotiated away citations, got a quit claim deed, and my Mortgage is in the form of an 18,500 Home Equity Line of Credit. I then used the Line of Credit to repair the house. I went for a 10 year term – even though 30 years would be easier to pay down – because I want to be debt free when the time comes to put a new roof up. I fully expect that in 10 years time, this house will be worth a quarter of a million with no debt. Based on the condition it was in prior to repairs. Already, if I wanted to, I could sell this house for over twice the debt I have any time I want. But I love this house. I worked hard so I can have it, and now that I do, the values are just a nice thing to see on paper since I never will sell. But being able to sell if and when I need to is important to me.

    It is important to have a long term plan and follow through. I was only 21 when I started these plans, but at age 27, I can honestly say I am in a better position than most of the people I grew up with. And the best part is? I am doing it all with Poverty level income. Because owning is cheaper than renting, it just takes common sense – living within your means – and a good plan.

  • Nadesico

    Another helpful tip, sell off the things that contributed to your credit card debt in the first place such as Xbox 360, Playstation 3’s, shoes, clothes, cars, boats, vacation home, etc. Taking fewer vacations and eating at home also helps.

  • Sondra Callin

    I have been on disability for over 17 years now. I am getting a permanent deferment for my student loan, i still owe a little over $8,000.00. I am very much in arrears on this loan.
    My credit score is 570, when i get the permanent deferment, how do i get this off of my credit score, and will my score improve?