Wondering what debt to pay off first? Once you’re ready to go beyond just paying minimum payments on each one, typical reactions are to either try to pay just a little bit more than the minimum to all of your creditors, or to try to decide which way will save you the most money.
In other words, we try to figure out what debt to pay off first based on logic. Unfortunately, that can be complicated, unless you owe the IRS. (In that case, they should probably top your list.)
Worse, trying to figure out what debt to pay off first based on logic isn’t necessarily effective, because borrowing money is rarely logical.
Considerations
So instead, think about two things in making your decision about what debt to pay off first:
- Which debt would be easiest to pay off first?
- Which debt would you feel happiest about seeing gone?
Easiest is going to be the one with the smallest balance, simply because there’s less of it. So put your debts in order from smallest to largest and get rid of the first one as fast as you can. This is the traditional, Dave Ramsey-esque approach to paying off debt. And it’s very effective, because people are motivated by feelings.They feel great when they get rid of that first one, and so they keep going!
Logic really doesn’t play into it.
Don’t believe me?
Think about how you got into debt in the first place. Chances are, it’s because you wanted things, and didn’t want to wait until you had the money to pay for it.
Your pet got sick and required expensive medical treatment, so you paid for because you love your pet.
You “needed” a new car, right now, even though your old one could have been repaired for a few hundred dollars.
You wanted to go out to eat with your friends, when you didn’t get paid for another two weeks.
You hated having company over because they’d see your mismatched furniture or empty rooms in your house — the house you bought before you were financially ready, because “everyone” was buying a house at your age.
Not true needs
Most of those probably felt like needs, but realistically they were not. (Rationalizing something away doesn’t mean it’s actually true. It just means you’ve made your brain align with what you wanted emotionally.)
If you had been logical, you wouldn’t have gotten a pet you couldn’t truly afford to care for in the first place. You would have fixed the car, stayed home from dinner because you didn’t have the money, shut the door to the empty room or not cared what your friends thought, and rented until you were really ready to buy. Instead, you borrowed money and agreed to pay extra for the privilege.
But, what about….
The second question about which debt you would feel happiest about seeing gone comes into play if there’s a particular debt that’s really weighing on you emotionally. Maybe you owe your parents $1000, and every time you see them you feel like crap. In fact, you go out of your way not to see them any more, and it’s ruining your relationship. If you’re sick at heart over a particular debt, consider putting that at the top of the list when it comes to what debt to pay off first. Just be sure your feelings are strong enough to carry you through to completion.
Remember, a huge part of how to get out of debt is changing your behavior for good. And your behavior starts with your emotions.
I'm Jackie Beck, personal finance writer and creator of 
I don’t have debt, but I have seen this to be true with my brother and sister-in-law. They have struggled with some debt issues, but lately became committed to get out of debt. It certainly starts with a belief that you can do it.
Oh yeah, believing you can do it and then making that commitment makes a huge difference.
This is an awesome post. I like the detail and consideration of how you feel. Getting into debt is not rational. Thus, use the same tactic to get out. This one’s going in a round up soon!!!!
I’m glad you liked it :)
It makes a lot of sense that debt is an emotional issue to begin with. There are certain debts that I have which I want to eliminate first and foremost. It is time to capitalize on that desire and motivation to get the ball rolling.
Let us know your progress!
My friend became debt free earlier this year after being in debt for almost 10 years. Then he became so happy that the started spending money left and right. So after 6 months, he’s not in more debt than he was ever before. It’s a shame. People need to learn how to maintain debt free AFTER reaching debt free
Wow, I can’t imagine going back into debt after working to become debt free. Do you know how he got out of debt? Usually that involves changes that make it hard to go back into debt unless you do it deliberately.
I never had any debt to begin with, but I do struggle from time to time in regards to saving more money.
At least you don’t have debt — that’s a huge step in the right direction. Have you tried automating your savings?
I have. But I need to do more and spend less on tech gadgets :)
You have left out the first thing that I would think of in deciding which debts to pay first. Before I would worry about what would make me happiest, or which is the easiest, I would think about which debt has the most downside if I don’t make the payments. The “what’s the worst that can happen?” test.
Obviously debts owed to government agencies, court ordered debts, child support or secured debts would be at the top of such a list.
Good point. I will edit my post later to clarify that I’m talking about situations where you already are paying at least the minimum payments on all of your debts, and are just trying to decide which debt to hit with all you’ve got.
Luckily for me the one to pay off is the smallest (emotional side) as well as highest interest (logical) :)
Now I need to stay focused on the decreasing pay off amount instead of the increasing credit available
Hey that’s handy. But yes, focus on getting the debt paid off is critical!
You did a great job of explaining why using the logic approach (e.g. highest interest rate first) doesn’t necessarily work. Very good examples that really hit home. I hope people reading this post take it to heart.
Thanks! I hope so too.
Great quick tips for dealing with debt! Easy to follow and understand – thanks for sharing.
Glad you found them helpful.
Great tips. If you focus on the easiest, you can really celebrate the win!
And it’s amazing how good it feels to celebrate a win like that!
I can see that! I’m more math oriented so I would go after the highest interest rate cards first, but I can definitely see where paying off the smallest balance cards first would work too.
Yup it’s whatever keeps you super-motivated and sticking with it!
We attacked our debts from highest interest to lowest interest (cars to the mortgage), but that ended up being the smallest amount to the highest amount anyway. :-)
Nice :)
Attacking debt from the smallest to the largest seems to work for us, but I could see value in getting rid of that emotionally draining debt first. Having to pay a parent money can be a lot to bare, so getting rid of that has to feel good.
Good thoughts and thanks for sharing….now to begin attacking my debt again!!
Thanks, and happy debt-attacking!
Jackie, I have been so tempted to pay off my car loan before working on my 4-5K of credit debt. I know with what you talk about on your blog this would not be a rational thing to do since I’m paying more in interest on my cards but I hate the choice I made and am stuck with a car payment of about 25% of what I make a month. I have 3 years left from a 6 year loan. Also, do you think it would be a good idea to borrow half of my 401K to help pay off some debt?
Is there anyway you could sell your car and spend a couple of thousand on a replacement car? That might be one option. Or maybe you can throw even more at the credit cards so you can get to the car sooner? Maybe by taking on extra work? But no, if it were me I would not borrow from a 401k to pay off debt. You’d still be on debt, just to your 401k, which brings additional risks because the whole amount would be due if you were to lose your job for whatever reason. My philosophy is retirement money is only for retirement.