Playing Whack-a-Debt — Which Debt Should You Pay Off First?
When you're facing debt from more than one place, figuring out where to start could feel overwhelming. But you may want to consider starting with your smallest debt first to help you gain traction. Getting even a small balance paid off can feel like a big win and that sense of progress can be vital when it comes to staying motivated.
As important as knowing where to start is understanding all of the various payoff methods out there. This guide explains common debt payment strategies to consider — as well as methods you may want to avoid.
4 payoff strategies to help you get out of debt
While it’s true that there is no one-size-fits-all method for eliminating debt, having a clear plan will make the process more manageable. Here are four strategies to consider:
1. The snowball method
If you feel trapped by multiple forms of debt and struggle to believe you’ll actually ever pay it off, the snowball method could help. You start by paying off the smallest debt first, regardless of interest rate, while maintaining minimum payments on the others. As each debt is eliminated, you "roll" your freed-up money into the next balance, working your way up to the biggest debt. This method provides you with emotional wins early on, which can make all the difference in your journey to being debt-free.
2. The avalanche method
This strategy focuses on paying off debts with the highest interest rates first, while making minimum payments on the rest. It can be a great choice if your priority is to save money on interest over time — especially when it comes to high-interest
credit card debt. The idea is that once the highest-interest balance is gone, it should be easier for you to tackle the next highest, and so on.
3. Debt consolidation
Consolidating your debts means combining multiple balances into one loan, typically with a lower interest rate. While this approach can simplify repayment and potentially reduce what you pay in interest, it’s best done only if you can qualify for more favorable terms. Furthermore, it's important to strictly avoid taking on more debt afterward in order for this method to be successful.
4. Debt refinancing
Debt refinancing involves replacing your current loan with a new one that ideally offers a lower interest rate or better terms. While this option can potentially save you money down the road, it’s important to factor in any origination fees or penalties before committing.
Debt payment methods to potentially avoid
Let’s face it. When you're trying to pay off debt fast, a shortcut will look like a lifeline.
But some methods of debt repayment could end up costing you more in the long run or lead you further into the red. Here are a few debt repayment options that can often be more trouble than they’re worth:
Balance transfers. Shifting debt to a credit card with a 0% intro APR can seem like a smart move. But these offers usually come with a balance transfer fee and limited promotional window. That means if you fail to pay off the transferred balance in time, high interest kicks in and you could quickly end up deeper in debt. Plus, remember that opening a new credit card is likely to bump your credit score down — at least temporarily.
Debt consolidation loans. While this strategy could get you out of debt by potentially simplifying multiple payments into one (as noted above), it’s far from a guaranteed win. You could end up with a longer loan term, meaning you’ll pay more in interest over time. Plus, if you’re not prepared to genuinely improve your spending habits, you may find it all too easy to rack up new balances while still having to pay off the consolidation loan.
Debt settlement services. There are companies that will negotiate with creditors on your behalf to reduce what you owe. But be aware that there's a catch — most services require you to stop making payments while they negotiate, which is likely to tank your credit score. There's also no guarantee that your creditors will accept the settlement offered. When you factor in the hefty service fees, this option looks more like a last resort rather than a fast track to debt freedom.
5 steps to set up a debt repayment plan
Once you've decided on a method, create a structured and personalized plan for paying off the debt. That way the process will be workable and realistic for you. Here's how:
1. List all of your debts
Start by gathering details on every debt you owe — and put it all in one place. Include the total balance, interest rate, minimum monthly payment, and due date for each account. This process will give you a complete picture of your financial obligations and help you identify which debts are costing you the most. It also creates a baseline for you to work from and track your progress against.
2. Establish your debt priorities
Once all your debts are pulled together, decide which one to tackle first — depending on the method that resonates most for you. No matter what you focus on first, the strategy you choose should reflect your financial goals and what will motivate you to keep paying off debt.
3. Get on a budget
You can’t pay down debt effectively without knowing where your money is going. That’s why establishing a realistic monthly budget to work from is vital to your success. Start with one that accounts for your income, fixed expenses, and variable costs like groceries, medical care, and transportation.
Key tip: Scan your accounts regularly for areas to cut back on, so you can redirect more money toward debt payoff. Even if you’re
living paycheck to paycheck, there are still ways to create savings each month.
4. Try debt repayment strategies
With a clear view of your budget and debts, choose a payoff strategy that suits your needs and circumstances. For example, the avalanche method is great for minimizing interest, while the snowball method offers quick wins that empower you to keep moving forward. You might also want to consider consolidating or refinancing, depending on what’s available to you. Remember, whichever route you choose, consistency is key.
5. Research debt payoff tools and apps
It’s worth noting that you don’t have to do it alone. Make use of the digital tools and apps that are out there to help you stay on track. There are apps designed to help you organize your debts, track your payments, and even run you through different debt-payoff scenarios.
Monitor your credit as you pay down debt
The EarnIn app makes this easy with built-in
credit monitoring tools that keep you informed. You can also use the
Cash Out feature to access money from your paycheck early in a pinch, helping you
avoid late fees and keep your payment schedule on track.
FAQs
What are the 3 types of debt?
In terms of risk, the three main types of debt are secured, unsecured, and revolving. Secured debt is backed by collateral, like a mortgage or a car loan. Unsecured debt, however, isn’t tied to any asset — so credit cards and personal loans are included in this type. Revolving debt lets you borrow repeatedly up to a limit, with credit cards being one example, along with home equity lines of credit (HELOCs).
How long does it take to repay debt?
That depends on how much you owe, your interest rate, and how aggressively you can pay your debt back. With a focused repayment plan, some people can eliminate their debt in one-to-three years. Those with higher balances or lower monthly income may need five years or more. The most important things are consistency and increasing your repayments whenever possible.
Can you get someone to pay off your debt?
In most cases, no one else is obligated to pay your debt unless they co-signed for it. However, there are options for financial assistance or debt relief in extreme situations, including nonprofit credit counseling or debt forgiveness programs. Just be wary of debt relief offers that seem too good to be true — they usually are.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
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