Which Debt Should I Pay Off First?

 So you want to start or accelerate paying off debts, and you have a student loan, credit card debt, car payments, mortgage … the list seems to go on. It may seem impossible to get your total debt under control, but as you look at each debt one by one, it may not seem so overwhelming. Now, close your eyes and imagine all your credit card balances are zero. How does that feel? Let’s start your plan on what to pay off first.

1.Any past due bills 

Keep your good credit rating intact or get back on the right track. First,  pay off any past due bills that are or could eventually jeopardize your credit rating. 

2.Pay off the debt with the highest interest rate 

Line up your credit cards and literally tape each one to a piece of paper. Write out the APRs next to each one. You want to eliminate the debt with the highest interest rate first.
​There’s personal preference options when it comes to paying off debt.

Snowball method
List your debts from smallest to largest balance  (regardless of  interest rate).
Make minimum payments on all of your debts, except the smallest. Pay as much money as you can toward the smallest debt until it is paid off, then move onto the next smallest and so on and so on until all debts are paid off. Psychologically, it may be encouraging for you too see those smaller debts paid off.
Avalanche method
Make minimum payments on all debt, then use extra funds to pay off debt with the highest interest rate. 


3. But, hey, neither of these methods is going to work unless you stop racking up debt. Stop charging!

Let’s get to the heart of the problem. Why do you keep racking up credit card debt?
Take a good look at your last three statements on each credit card and see what you are spending money on. Could you switch up dinner plans with friends for a hike and picnic or head to a museum? Are you traveling a bit more than your budget allows at this time? Perhaps you need to be more selective with the trips.  Are you making impulse purchases to satisfy an emotional need? Once you pay off the credit card debt, it is important to create new habits that don’t rack up more debt and send you back to square one. 

4. Save money on automatic charges
See if there are payments you can eliminate or reduce. Go through your monthly statements and cut out any subscriptions you aren’t using. Are you really watching all those cable channels? Check out your insurance rates and cell phone bills. Shop around for more competitive rates and see if you can cut costs there. Make a list when you are grocery shopping so you don’t aimlessly pick out items that end up spoiling and getting thrown in the trash. 

5. Automate your debt payments so you can focus on generating more income
“What you think about, you bring about,” right? You don’t want to be thinking about your debt. Your energy is better focused on how you can generate more income and improve your life overall. Financial independence leads to freedom and options, and that’s really what getting control of your debt is all about anyway, right?