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How To Effectively Prioritize Debts For Payment

Which debts should you prioritize for payment?


Understanding which debts are a priority for repayment is important, as it has an impact on how quickly you will become debt-free.

Prioritizing your debts can also help you to feel more in control of your financial situation. Sticking to a structured repayment strategy can save you time and money, and it can make your debts seem less daunting.

How do I decide which debts are most important?


It’s vital to keep up regular monthly payments on your mortgage or rent. Keeping a roof over your head should be your main priority. Essentials such as groceries and utility bills are expenses to factor in before deciding which debt to tackle first.

Different strategies should be considered when prioritizing your debts. Some people prefer to focus on smaller debts first and “check them off” with a sense of satisfaction as individual debts are cleared. Others want to reduce the amount of interest they are charged as fast as possible. However you choose to prioritize your debts, taking action will help you feel more in control of your financial situation.

Save money by repaying high APR debts first


If you want to pay the lowest amount of interest, the most effective strategy is to settle the highest Annual Percentage Rate (APR) debts first. If you prioritize these debts, you’ll save money in the long run because high APR debts accrue greater monthly interest charges.  APR helps to compare interest charges on credit cards and is shown as a percentage of the amount borrowed. A lower APR percentage means less interest will need to be repaid.

This method is known as the debt avalanche. The goal is to reduce the amount of interest you pay overall. Each month, a portion of your monthly payment covers the interest charges, and the remainder goes to paying off the balance of your debt.

With high APR rates, you pay more to cover the interest, which means it will take longer to reduce the debt itself. Therefore, it makes financial sense to first tackle debts with higher interest charges.

Suppose the minimum monthly payment on your credit card is $125. At 15% APR, the accrued monthly interest payments will account for $62.50 of that payment. If the APR is 20%, the interest charges rise to $83.33, meaning you’ll pay more interest throughout the debt.

If you are focused on the bigger picture of reducing your debts and can make regular monthly overpayments, this could be the best overall strategy for you.

Need motivation? Prioritize your debts using the snowball strategy


The debt snowball method is a great strategy for those who want to see their number of individual debts decrease. Checking off each debt as you repay it can give you added motivation to stick to your strategy.

With this strategy, the idea is to focus on the smallest debt while making only the minimum payment on any other debts. Once the lowest debt amount is paid off, the funds originally scheduled for that debt can be reallocated toward the second smallest debt. When you “snowball” your repayments, they build as each debt is paid. The cycle should be repeated until you have cleared all your outstanding debts.

The advantage of prioritizing your debts using the snowball method is the psychological boost you get from clearing a debt. Motivation is important if you want to remain focused on a debt-free future. Those quick wins garnered by clearing a smaller can help you succeed in the long term.

Debt consolidation


If your debts are likely to take over 5 years to clear using either the avalanche or snowball methods,
debt consolidation is an alternative strategy you can use to bring effective debt relief.

Debt consolidation takes all your loans and debts and restructures them into one monthly payment. Restructuring your debt with the help of a reputable debt relief company removes the stress of managing each debt. Staying on top of several payments can be a struggle; debt consolidation can help you to regain control of your finances and build a debt-free future.

A single monthly payment that is managed effectively can result in a more positive credit score. If in the past you’ve missed payments, debt consolidation provides a simple solution that eliminates the stress of juggling multiple payments and can result in a better credit score as you become free of debt.

A brighter financial future is achievable

Effective Debt Relief offers a tailored debt management plan to help reduce the balances on your debts. We negotiate with your creditors and can often lower the total amount you owe. Consolidating your debt can reduce finance charges and interest rates to ensure your creditors are repaid at a rate you can afford and maintain.

Our friendly team understands that seeking help for financial issues can seem daunting. We can help you take the first step toward financial stability with our debt counseling, personal consolidation loans, and personalized debt reduction programs.

We’ve helped over 29,000 customers achieve a debt-free future. Call us at 800-940-5449​ to discuss prioritizing your debts with our AFCC- and IAPDA-accredited experts.

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