How should I prioritize paying off my debts?

Read time: 7 to 8 minutes

Does it feel like your credit card bills, mortgage payments, or student loans never stop piling up? Although it can feel overwhelming, there are multiple proven strategies to help you get debt-free faster.

Start with the 50/30/20 rule

To build an effective plan for tackling your debt, start with a full picture of your finances.

Create a list of your debts. Record all your debts, including credit cards, personal loans, student loans, and auto loans. Be sure to list the interest rate, balance, and minimum monthly payment for each.
Pay the minimum on all your debts. Be sure to make your minimum payments to avoid penalties or late fee.
Budget your finances. There are many different budgeting approaches. Use the one that works best for you and your financial situation. One approach you can try is the 50/30/20 rule. This widely used budgeting guide can get you back on track, even when your debt feels unmanageable.

The table below shows how to use this method to divide your income into three groups for budgeting:

Want to see how much you're spending each month? Use our budgeting tool to stay on top of your finances.

4. Use the money you save to pay off your debts. The two most popular debt paydown strategies are the debt avalanche and snowball methods.

What's the debt avalanche method?

The debt avalanche method is a payment strategy that prioritizes paying off your highest-interest debt while making minimum payments on all your other debts. No matter how much money you owe, this approach can save you the most time and money because you'll be paying less interest in the long run. If two debts have the same interest rate, start tackling the one with the lower balance first. You’ll be able to pay off that debt sooner and may even increase your credit score.

Order your debts by interest rate. Start with the highest rate and work your way down to the lowest rate.
Start chipping away at your highest-interest debt first. Use any extra money you can find to pay down your highest-interest debt. Every dollar counts. Once you pay off that credit card or other high-interest debt, put the money you were paying on your highest interest debt—the minimum plus the little extra—towards the debt with the next highest interest rate.
Work your way down the list until you're debt-free. Repeat the process until you work down to your lowest-interest debts, like other consumer debt and student loans.

Here's an example of the avalanche method:

Let's look at a scenario where you have an $800 monthly budget and the following debts.

List your debts from highest to lowest interest rates. Set aside money to cover all three of the minimum payments—$250 for the credit card, $245 for the personal loan, and $175 for the student loan. The total for your minimum payments in this example is $670 a month.
After paying the minimums, you have $130 left in your $800 budget. Add the remaining $130 toward the credit card payment for a total of $380 ($250 minimum + $130 extra).
After you pay off your credit card, put that $380 towards the personal loan payments, making the new total monthly payment $625 ($245 minimum payments + $380 from the paid-off credit card).
Once the personal loan is paid off, put the $800 ($175 minimum + $625 from the paid off credit card and paid off personal loan) toward paying off the student loan.

Following the avalanche approach would save about $6,000 in interest payments and get you debt-free around four years faster than just making minimum monthly payments!

What's the snowball method, and how does it work?

While the avalanche method is generally the quickest path to becoming debt-free and saving you the most money, some people prefer starting with the snowball method. The snowball method can help you stay motivated by paying off smaller debt sooner and getting quick wins. With the snowball method, begin by paying off your debt with the lowest balance first. Once that's paid off, move to the debt with the next lowest balance and continue the process. The snowball approach can be a more manageable starting point than the avalanche method, especially if you're already stressed out about paying back multiple debts. You can do it!

Here's an example of the snowball method:

With the snowball method, the lowest balance is now ranked first, instead of the highest interest rate with the avalanche method. Your monthly budget is $800.

List your debts from lowest to highest balances. Set aside money to cover all three of the minimum payments—$245 for the personal loan, $250 for the credit card, and $175 for the student loan—totaling $670.
After paying the minimums, you have $130 left in your $800 budget. Put the remaining $130 toward the personal loan payment, for a total of $375 ($245 minimum + $130 extra).
Once you pay off your personal loan, put the $375 toward the credit card payments, for a total of $625 ($250 minimum + $375 from the paid-off personal loan).
Once you pay off your credit card, put the $800 ($175 minimum + $625 from the paid-off personal loan) toward paying off the student loan.

Following the snowball method would save you about $4,600 in interest and get you debt-free around four years faster than just making minimum monthly payments.

Now's the time to take control of your finances

It's always best to have a plan. Budget your money. Pick a debt paydown approach. And start paying off your debts. You've got this!