How to figure out which debt to pay off first


If you’re like most people, you have a few credit cards here and there, maybe a student loan payment, and perhaps a car payment. In addition, maybe you own a house and have a mortgage payment.

That’s a lot of bills to manage. How do you tackle paying them off? Do you pick one of them? Do you pay a little toward each? Round robin each month? Does it even matter?

Two primary schools of thought

Experts (or at least those who feel confident enough in their advice to dole it out to others) tend to fall into two camps on how to pay off debt:

  • Smallest interest rate first
  • Smallest debt first

In the first case, you tackle the debt with the highest interest rate first and pay as much as possible on that one, while paying the minimums on everything else. When that one is paid off, you then switch to the next-highest interest rate and pay that off, while paying the minimums on everything else. You continue in this way until all debts are paid off. As you pay off debts, you can put more money toward the others (since you can add what you were paying on debt #1 to debt #2, then add both to debt #3, etc.).

Proponents of this method point to how this will result in paying less money out over the long term (as the next interest rate will decrease as time goes on). Not a bad plan.

In the second case, also known as the “debt snowball” method, you tackle the smallest debt instead of the one with the highest interest rate with minimums on everything else, pay that one off, and then move to the next larger debt, again paying minimums of everything else, etc. Again, as you pay off debts, you can put more money toward the larger debts, making them easier to manage.

Proponents of this method point to how the borrower will get positive reinforcement (since the smallest debts can be paid off more quickly), which can galvanize the borrower into continuing on with the plan, thus giving them a greater chance of success.

Neither method is right or wrong, but I’m a huge proponent of the debt snowball. My reasoning has less to do with math or quick wins though.

Why I like the debt snowball

The biggest reason I’m in favor of paying off smaller debts first is for the increased simplicity. The sheer number of bills one gets in the mail (or through email or wherever) can exact a psychological toll, no matter what the size of the bills are. I would argue even that $10,000 in debt when spread over six bills is more stressful than $20,000 of debt that’s spread over only two.

But even going beyond the simplicity or stress angles, there’s the issue of risk. When you have lots of payments to be made, then that means lots of potential for things to go wrong. If you have six debts and you find yourself behind on them for whatever reason, then you will have more problems than if you had one or two debts to worry about.

I even had someone tell me that since she’s been making progress on her personal debt snowball, she’s noticed that she’s been getting less mail! I never thought about that before, but that sounds like yet another benefit.

Choose your own (debt) adventure

You don’t need to pick one method or the other exclusively. If you have a loan that’s at a giant huge interest rate, it might be a good idea to tackle that one first, and then start back at the smallest debt.

Also, there are certain debts that really need to be tackled first. For example, anything that you’re behind on, you will want to focus on first. If the IRS is going to come take your house, you may want to prioritize that one. Get yourself current and out of financial danger, and then worry about what type of method you will use to pay off your debt.


For example, I stuck with the debt snowball almost entirely with my student loans, but at the end I decided to go for a bit of a dramatic touch. For the last half year or so, instead of paying down the debt with all the extra money I now had to put toward debt, I kept it all in reserve in a savings account, in effect paying extra interest on the loan for a few months.

Why in the world did I do that? Because I wanted the psychological win of paying off the entire loan at once. Not only did I pay off my final student loan, but I ended up doing it by sending in a payment of roughly $15,000 dollars. It felt a little like sending an upraised middle finger to my student loan vendor, and that was worth a few months of extra interest charges.

I called this tactic the “debt blunderbuss.” in homage to the description given to it by Neal Stephenson in “Quicksilver”: “The virtue of a blunderbuss … is to make a weapon out of whatever nails, pebbles, splinters, and fragments might be lying about …” I quite liked the image of throwing everything I had at the loan, kitchen sink and all, and firing it.

This is a blunderbuss. See Wikipedia
This is a blunderbuss according to Wikipedia

I’m not at all suggesting that this is how you should do it. But in the end, the choice of which method to use to pay off your debts is not nearly as important as the choice you make to finally pay them off.

But enough about me: how do you handle your debts?

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