Calculate which debt to pay first

There are also two kinds of debt: secured debt and unsecured debt. If you fall behind on payments to a secured debt—like a mortgage or car loan—that collateral could be repossessed by your lender. Whether your debt is secured or unsecured is important because it could impact which debt you pay off first. For instance, if you just bought a home—one of the biggest purchases of your life—you probably will not be financially able to pay off your mortgage right away.

However, if you recently graduated college and are only making minimum payments on your student loan, you may want to consider making larger payments in order to pay off that debt sooner.

The interest rates you are paying may also determine which debt to pay off first. For example, a credit card with a high APR will take a long time to pay off since interest makes up a big chunk of your minimum payments each month. Once your highest-interest debt is paid in full, put the extra money you used for the paid-off debt toward the card with the second-highest interest rate. Continue this process until all your debt is paid off.

Interest rates are just one factor to consider when deciding which debt to pay off first. It may make more sense to pay off your smallest balances first to build momentum or pay off an overdue balance that might go into collections soon. While the debt avalanche method might save you more money, you may be better off using the "debt snowball" method. Rather than focusing on interest rates, you pay off your smallest debt first while making minimum payments on your other debt.

Once you pay off the smallest debt, use that cash to make larger payments on the next smallest debt. Continue until all your debt is paid off. If you have a small debt, like a few hundred dollars, you might be able to pay this off in a few weeks or a couple of months. This first win may be the motivation you need to stay the course and pay off your remaining debt. Sometimes the debt you pay off first has nothing to do with interest rates or tax breaks. Instead, it could be solely based on how the debt makes you feel.

If you have outstanding medical debt, that may get your attention over other types of debt. Payday loans , which require payment by your next payday and tend to charge exorbitant interest rates and fees, might be taking a toll on your emotional health. In that case, try to pay off those loans as soon as possible.

Compound interest is calculated more often, so the quicker you can pay off that debt, the fewer interest costs you will incur. Compared to debt with simple interest, debt with compound interest is usually a better priority.

Credit cards, payday loans, car title loans and high-interest unsecured loans could all be considered bad debts. If you owe a mix of both good and bad debt, you want to make sure that you pay off the ones that are costing you the most money first. Once you ditch the bad debts, you can toss the extra money towards the ones with lower interest rates. Regardless of which debt repayment strategy you choose, the key to success is sticking with it.

This allows you to keep track of your progress and it also keeps you motivated to reach the next target on your list. Giving yourself a small reward every time you pay off a debt provides a much-needed boost. Have a friend or your spouse act as an accountability partner can help you stay focused. Paying off credit card debt is tough — but worth it. Update : Have more financial questions? The debt snowball calculator below does the heavy lifting of determining a debt payoff path for you.

Enter the account name and balance for your various debts, such as credit card debt , student loans or medical bills in the debt calculator. Also input interest rates and minimum payments due on your debts. For credit cards, you can typically find interest rates and minimum payments on your statements. Payment strategy: Put together a budget to determine how much extra money you can put toward your debt monthly beyond minimum payments.

See the difference in interest between your current plan and the new plan with your additional payment amount. This could change depending on the payoff method of debt avalanche or debt snowball.