It’s not unusual to have your debt spread out all over the place.  You put a little on this credit card, and some another credit card.  You made a large purchase on yet another credit card. You might have a mortgage to pay off, payments due on your car, or a have a balance on a student loan. What should you pay off first? There are differing opinions about how to determine that. Ultimately, you have to decide what is right for you.

Dave Ramsey has a “snowball” plan.  First, make a list of all your debts. Pay off the smallest debt first, while continuing to make minimum payments on all of your other outstanding debts.  Paying off the smallest debt first will allow you to quickly cross it off your list, mentally, and literally, and make you feel good.  This will motivate you to pay off the next smallest debt, and continue to work your way down the list until you are debt free.

Another method is to figure out which of your debts has the highest consequence if you fall behind in payments, or take longer to pay it off. Pay off the debt that is threatening to cause you the most harm first.  Miss a mortgage payment, and you could potentially end up losing your house.  A late car payment could influence a lender to repossess your car, which will impact your ability to get to work and make money.  Unpaid student loans, tax debt, and child support payments could result in a lawsuit or a garnishing of your wages. Of course, you still have to continue to pay at least the minimum on each of your other loans.

Or, you could decide to pay off whichever loan has the highest interest rate first.  Perhaps this is a credit card debt, or other unsecured loan.  The basic idea with this method is to first get rid of the debt that is costing you the most money.  Continue making payments on your other debts while focusing on the most expensive one.

All three methods suggest you focus your efforts on paying off one debt.  You shouldn’t miss payments on the other debts while you work on this one.  You can become debt free with some effort and determination, no matter which debt you decide to pay off first.  You will be on your way to a fresh start.