Debt payoff planner: Which debts should I pay off first?

What Order Should You Pay Off Your Debts In?

It’s one thing to decide that you want to pay off your debts. But how do you know where to start, especially if you have multiple debts?

“Our experience shows that you will pay your debts down more efficiently and therefore more quickly if you’ve got a plan in place,” says Jeff Schwartz Executive Director, Consolidated Credit Counseling Services of Canada.

what order should i pay my debts off in

Good debt vs. bad debt

Ultimately, the best kind of debt is no debt at all. But that said, you’ve got to examine the debt that you’ve got.  Do you have credit cards, car loans, student loans, a mortgage or a combination of these?

Some debt that you take out is considered “good debt” (i.e. debt that you’ve taken on to increase your net worth, like buying home, home renovations or furthering your education). Although you should plan to pay down all your debt eventually, you are likely better served to get rid of that “bad” debt (i.e. your credit cards) first.

Chances are they are at a higher interest rate than your “good debt” which means that you need to get rid of them first.

“Carrying a balance with high interest rate debt is going to cost you more and more the longer that it accumulates,” says Schwartz.

Pick a card, any card

If you’ve decided to pay your cards down first, you need to pick one to pay first. Don’t spread small payments across multiple cards. You are better served to make your minimum payments and then focus your money on one card at a time.

You’ve got two choices: you can either pick the highest interest rate card or you may want to go with the smallest balance one. Getting rid of the highest interest one is good from a financial point of view, but it can be motivating to pay a card down quickly, which is why the small balance approach is good too.

Think about your credit score

If you are trying to boost your credit score, you may want to address cards that are at or near their limits sooner rather than later. One of things that will drag your score down is if you’ve got a card that is maxed out. Even worse is if you have multiple cards that are maxed out.

How do you decide which approach is best?

In order to ensure success with paying down your debt, you should think about your personality and tailor your approach. Do you find it hard to stick with something over the long term? Picking a small balance card may be the right answer for you because achieving that goal will take less time. Once you’ve demonstrated to yourself the benefits of staying on course, you may be better able to continue.

If you are extremely motivated and have the willpower to see your plan through in the long term, you may be better to go with the higher interest card. Doing so will pay down your highest interest bearing debt first, which will translate into more money in your pocket.

Whatever your approach, your success ultimately hinges on deciding to become debt-free and sticking with your payment plan.

Need help with your debt payoff planner? Call us at or get started with our free online debt analysis .

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Shivani Karwal
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