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How do I prioritize paying off different types of debt?


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If there’s one thing that sticks around longer than your annoying ex, it’s debt. Always pestering you when you just want to move on with your life, amirite?

Unfortunately, if you want to get your financial life together you need to dump your debt (ugh). You might have student loans for a degree you’re not even sure was worth it, a car loan, and credit card debt. It can feel totally overwhelming paying off different kinds of debt and you wonder, “Where do I even start?”

Let’s say you have $2k in credit card debt, an $18k car loan, and $43k in student loans. You want to pay off debt ASAP, but how do you prioritize??

Well, there are two main methods for paying off debt that weirdly have to do with snow. First, You have the “debt snowball” which is a plan where you pay down the smallest balance first.

The Debt Snowball

You can ditch debt faster by focusing on the smallest balance and “snowball” your way up to paying off the next smallest balance. In this example, that would mean paying down the credit card first, car loan next, and then those pesky student loans. You would still make all of your minimum payments and throw any extra dough to the smallest balance.

The Debt Avalanche

The debt avalanche is a plan where you start by paying down the debt with the highest interest rate. Your balances are not relevant in this case, it’s all about the interest rate.

Interest grows faster than the mold on that bag of salad greens you were supposed to eat last week, so by focusing on the high-interest debt you can save money in the long run. You’d pay the minimum on all of your debt and take any leftover cash and put it toward your debt with the highest interest rate. In many cases, that would be your credit card which can have criminally high interest rates.

How do you sleep at night?

The debt snowball can give you a jolt of motivation but the debt avalanche will save you more money. In my book, Dear Debt, I also mention two additional strategies. One is paying down the debt that makes you angry and the other is paying down the debt that will help you sleep at night.

So if you’re in credit card debt from an ex that enrages you or you took a loan from your parents and it’s eating at you, you would focus on paying down those loans first. Let’s face it, debt is emotional so those strategies can help you feel better about your debt sitch. You get to choose your strategy but the best one is the one that you will stick to.

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