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Which Debt Should I Pay Off First?

Written by Ilyce Glink on March 26, 2015 in Credit  |   15 comments

When you’re facing many different types of debt, deciding which one to focus on first can be a daunting task. As you formulate your plan to pay off debt, consider the following four tips to help you stay motivated and on track.

Which Debt Should I Pay Off FirstFrom medical debts to student loans, Americans are struggling to pay off around $3 trillion in consumer debt. In addition, according to a study from the Urban Institute, which analyzed the credit files of 7 million Americans, more than one-third of Americans with a credit file have accounts in collections.

“Personally, I don’t like that feeling of owing this debt—I don’t like someone calling me at eight in the morning about a bill,” says Deborah Blount, an Atlanta resident who has struggled to pay off tax debts, medical bills, and credit card accounts.

It’s difficult to know how to begin rebuilding your finances when you’re facing different types of debt. The first step to paying off debt is to understand your situation and what type of debt you owe.

What are the different types of debt?

There are different types of debt: the two most common types are revolving accounts and installment accounts. Their impact on consumers will vary, depending on the interest rate — the finance fee you pay for the use of the money you borrow. (There are also single pay notes, where there are no monthly payments but the entire sum is due at the end of the loan; an interest-only loan, where only interest payments are paid for a fixed period of time and the principle is paid off on a future date; and balloon loans, which have low monthly payments and a large payment—the balloon payment—due at the end of the loan period.)

Typically, credit cards have a higher interest rate and are categorized as revolving accounts.

Installment accounts, on the other hand, are credit accounts where the amount and number of payments are predetermined, such as a car loan, student loan, or a mortgage. (Mortgage accounts, such as first mortgages or home equity loans, are debts secured by real estate and are listed separately on your Equifax credit report.) Because installments are predetermined payments, some advisors suggest paying off revolving accounts with higher interest rates first. For example, if you have student loans and credit cards, putting more money toward the credit card may save you from overpaying in interest.

“Almost always, the consumer debt is the first to address because of the higher interest rate,” says Art Lundgren, a financial planner with Lake Country Financial Planning. Generally, the debt with the highest interest rate will cost you the most over time.

Other advisors suggest paying down the smallest debt first, says Gail Cunningham, the media relations manager for the National Foundation for Credit Counseling (NFCC). “You’ll have that sense of accomplishment, which may be what you need to make it to the finish line,” says Cunningham.

Whether you’re tackling revolving or installment debt, consider the following four tips to stay motivated and on the right financial track:

1. Know what you owe and plan your payback.
“Every day, the interest and penalties are growing. You need to find out what you owe so you can get a grip on it,” says Blount. In her case, the calls from debt collectors made her realize she needed to figure out her debt scenario.

“If you don’t know what you owe, you can’t fix it,” Blount explains. Even if you can’t afford to pay off your debt immediately, knowing your situation will help you make the minimum payment, monitor your accounts, and make a plan to pay it back.

“A plan is really important,” Lundgren says. By setting your goals, you can address your anxiety and frustration—and avoid discouragement.

Start by tracking your expenses for at least two months; you won’t be able to cut back on your spending if you don’t know where your money goes. Once you track your spending, set a firm budget and only spend what’s allotted. Review your budget to see if there are any other expenses you can reduce. These choices can help gain control over your spending, rather than being controlled by your debts.

“After my divorce, I was left with $10,000 in tax debt,” says Blount. “Last year I paid that off, and that gives me that incentive to do it again.”

2. Reward yourself.
Paying off long-term debts requires patience and persistence, so it helps to identify your motivation, Lundgren says. For some, that may mean paying off one debt as quickly as possible. For others, a fun activity after you achieve a goal may help you stay in the game.

“It’s really hard if you deny yourself everything, so make sure you give yourself small rewards once you reach a goal,” says Lundgren. For many, a debt-free future is the real motivation.

3. Ask for help.
According to Blount, the disrespectful attitude of some debt collectors can lead to discouragement. She recommends contacting non-for-profit agencies, such as American Financial Solutions, a member agency of the NFCC, for help.

Be sure to read reviews of the program you’re considering, Blount cautions. “It’s really important to do your research because there are a variety of programs that are just scamming people,” she says.

4. Pay the minimum payment.
Whether you start by paying off a small loan entirely or chipping away at a high-interest debt, it’s essential that you first pay the minimum for all your debts, Cunningham says. If you only pay one debt and neglect others, those other debts may go into collections. An account in collections will remain on your credit report for seven years plus 180 days from the start of the delinquency that led to the collection, and may impact your ability to borrow money in the future.

If you are in financial distress and are not able to make the minimum payment, contact the lender in advance of the due date — not once you’re already behind—and ask for an extension, says Cunningham. Some lenders also have programs that can help you pay back your loans and get on track.

Ilyce Glink is the author of over a dozen books, including the bestselling 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!

The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.


  1. Godfrey C says:

    Can you file your medical bills for taxes the following year? for your tax returns?

    • Maria says:

      My husband and I have a mortgage and as long you have that you may include medical, parking for work and work shoes and uniform.

  2. rodney says:

    very good thanks but i have a credit score of over 800 but i did enjoy reading this.

  3. Pablito V. says:

    Thanks for this info unfortunately many people out there knows this if I knew this 15 years ago I would probably be in BH’S California!!!

  4. Anonymous says:

    I still dont know which debt to tackle first – which is why i started reading this article – all the explanation on what debt it, you should have answered the question in the first paragraph then let me read on about what are debts.

  5. San says:

    Thx for the tips,very useful

  6. Steve P says:

    At Godfrey C: I am a professional tax preparer and tax accountant. You may deduct medical expenses to the extent they exceed 10% of your adjusted gross income in either the year incurred or paid.

  7. Mark W says:

    If a company keeps selling your debt (account) how does it keep starting over your 7 year clock on the debt(account)?
    And why is that allowed? So actually how long would it stay on your credit profile?

  8. Walt Z. says:

    I went through this a couple of years ago. Started by paying of cards with the lowest balance first, then taking payments from those cards and addingto minimum payments on higher balance cards. This requires self discipling to not accummulate any new charges that cannot be included in the payments

  9. Tami says:

    What does paying only the minimum payment do to your credit score? We normally pay off our cards every month, but had a very slow winter with our business and are trying to get them paid off, but if it lowers my credit score I do not want to only focus on one debt and then move to the other one. Can you explain how it could lower your credit score by making only your monthly minimum payment?

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