Home > 2014 > Managing Debt

How to Pick a Debt Payoff Strategy

Advertiser Disclosure Comments 0 Comments

The idea of beginning to save can seem impossible when you are carrying a large amount of debt. In fact, sometimes just figuring out how to pay off your debt can be difficult.

There are some strategies financial experts advise when it comes to deciding how to take care of your debt. Here’s how to decide which is right for you.

Different Kinds of Debt

It’s important to have a clear picture on your entire financial situation. Listing all your debt may be depressing, but it can help get you started on a road map to get rid of it. Think of your list of debts as a starting point and imagine how nice it will be to cross them off one by one. A great way to take stock of your debt is to pull your credit reports from the major credit bureaus, which you can do for free once a year.

Once you can see your debts in front of you, you can categorize them by the kind of debt. Not all debt is created equal. Some debt will cost you more because it has a higher interest. Other debts may cost you more because they are spread out over such a long time.

The Highest Interest

One strategy for deciding how to prioritize your debt payments is to tackle the highest-interest debt first. Paying interest doesn’t do anything for you. A car isn’t worth more because you paid more in interest. So knocking out the higher-interest debt first can cut down on how much you are paying in interest.

High-interest debt is typically from credit cards, auto loans or personal loans. Sometimes these debts are so large that the idea of not being able to cross anything off of your list for months or even years can be depressing and de-motivating. This is where the next strategy comes in.

The Smallest Total

If you are the kind of person who needs to build up confidence and enjoys small victories, you may want to try a different approach. To get you going, you might consider getting rid of your smallest debt first, regardless of the interest rate, then put the money you were paying on that one toward paying off the second-smallest and so on. This way, you will be able to cross debts off of your list and see progress more quickly.

In the long term, this strategy is likely to cost more because you will probably be paying the higher-interest debt for longer. But if the satisfaction of checking things off the list keeps you on track, it can be worth it.

Getting to Goal

Ultimately, you want to ensure you stay focused on paying off debt. How you prioritize your debt will depend on your creditors, your financial situation and your personality. If you try a strategy and it doesn’t work, try another . . . and then another until you’re living debt-free. You also may want to track your progress and how paying off your debt is helping your credit. You can check two of your credit scores for free every month and track your progress with a personalized action plan on Credit.com

More on Managing Debt:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team