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How To Prioritize Payments And Get Out Of Debt

With the pocketbook shock of the holidays behind us, many decide to take advantage of the new year and make a resolution to manage finances responsibly. For most, this means sticking to a budget, living within their means, relying on credit less often and, of course, getting out of debt.

Realizing your debt is split between the mortgage, car loan, student loans, credit card and personal debt makes beginning the task of paying it off especially difficult. Easiest way to tackle all your debt: prioritize.

Interest Rate

One of the simplest ways to prioritize your debt is to look at the interest rates to see which will cost you the most in interest if left outstanding. The idea is to pay off the debt that will cost you the most, making this system for ranking debt one of the most financially sound.

Remember that the Servicemembers Civil Relief Act caps many interest rates at 6 percent during the period of active duty, so you may have to adjust your debt priorities during a deployment.

Amount Owed

Another popular way to prioritize debt payments is to look at the total amount owed and rank from highest to lowest or vice versa. If you’re easily discouraged and in search of positive reinforcements, ranking your debt from lowest to highest amount can keep you motivated by knocking off several smaller amounts quickly.

If you’re adopting debt reduction as a long-term lifestyle and aren't worried about staying motivated, making bigger payments on your bigger amounts may make more sense to you. It all depends on your financial personality and goals.


It may seem like a no-brainer, but sometimes it is useful to look at debt as a hierarchy of importance. Don’t get too invested in a priority list that dictates you pay down a store credit card and end up without enough funds to pay important debts like mortgage and car payments.

Generally, you rank the most essential payments, such as home, car and child support, followed by any other essential household expenses. Loans with sensitive collateral, taxes and student loans are generally medium importance followed by credit card and unsecured debt. Unsecured debt includes any personal loans from friends or family that have no contracts.

A Friendly Reminder

A personalized system for prioritizing your debt will most likely be a combination of these techniques based on your situation. Those looking to get out of debt quickly may opt for paying down the biggest amount first while those looking to stay motivated may choose to pay off a few smaller debts first.

That said, remember that prioritizing your debt doesn’t mean you get to forget about the amounts lower on your list. Be sure you’re always making at least the minimum payment on all of your balances so you don’t backtrack by incurring late fees and overages. Also don't forget to track your progress and congratulate yourself when you make progress.