How to Prioritize Your Debts

Depending on how much debt you have, it can take months, possibly years to pay everything off entirely. What’s certain is that it’s extremely easy to lose motivation and to give up on your plan to become debt free. A lack of income, slow results, and competing for financial goals can all make it hard to make becoming debt free a reality.

In order to stay focused on your financial goals, you must have a plan. Paying off debt willy-nilly rarely produces measurable results, a problem that causes many to throw in the towel. With the right plan, you can set milestones and goals that show just how far you’ve come.

Here’s what you need to know about prioritizing your debts in order to create a solid get out of debt plan that you can follow until the day you’re entirely debt free.

First Things First: Organize Your Debt

Before you ever start to follow a debt repayment plan, it’s critical that you take the time to organize your debt. If you’re like most people, you simply pay the minimum balance due on all of your debts without taking a close look at what you still owe and how your payments are applied towards interest and the principal balance.

To organize your debt, you’ll need to write down the following information:

  • Debtor
  • Debt balance
  • Minimum payment
  • Interest rate
  • Payment due date

You can find all of this information on the billing statements you receive each month. If you don’t receive paper statements, log onto the appropriate website to review the digital copies. You can also contact a debtor and ask for this information to be provided to you.

After writing down all of this information, the numbers you’ll most closely want to focus on are the debt balances and interest rates.

Prioritize Debt by Interest Rate

A second option for repaying your debt is to prioritize debt by interest rate, paying off the highest interest debt first. Known as the debt avalanche method, this option saves you the most money over the course of paying off your debt. The one drawback is that it may not offer as much momentum as the snowball method.

When using the avalanche method, by paying off highest interest rate debt first, you’re able to save more money because you’ll be accruing less interest on your accounts. By making double or triple payments, you’re able to pay off debt quicker because more of your payment goes towards the principal balance.

The issue with this repayment method is that it doesn’t fix the psychological impact that debt has on people. This is especially true if your highest interest rate debt is also the debt that you have the highest balance on. This scenario can feel like an impossible feat.

Prioritize Debt by Balance

In the event that the above scenario is true for you, using the snowball method of debt repayment may be the better option. The snowball method requires you to pay off the lowest debt balance first and then moving to the next smallest debt balance. This method doesn’t save you money like the avalanche option does, but instead focuses more on the emotional and psychological side of debt.

With the snowball method, you’re guaranteed a small win every-so-often. If you have many small debts to pay off, this option allows you to feel the rush of making a final debt payment on a loan or credit card that you’ve had for years. The emotional side of paying off debt is often enough to keep people on track using the snowball method.

The momentum you build not only keeps you excited about paying off debt, but it also allows you to continue to pay off debt quickly.

Choosing the Right Method

There’s no wrong or right way to start your quest to becoming debt free. You may start off using the snowball method and then switch to the avalanche option. What’s most important is that you pick the plan that you can stick with for the long haul. Don’t choose a method that you only follow for a few weeks and then fall off course.

When choosing the right debt repayment method, you can make a more logical decision by looking at your debt. If you have a lot of smaller debt balances with similar interest rates, the snowball method makes the most sense. On the other hand, if you have debt with varying balances and interest rates, and your highest interest rate isn’t your highest balance, the avalanche method may be best.


Knowing how to prioritize your debts allows you to create a repayment plan that works for you. No matter if you choose the avalanche method or the snowball method, what’s most important is that you keep your eye on the prize. Here’s to being debt free!