Picking Favorites: Paying Off Your Debts

When it comes to picking which debt to payoff first, the decision can be challenging. Of course, we always recommend making the required payments on all of your debts. But if you have a little extra cash, how do you choose which goes first? Read on to find out some well grounded approaches to the debt payoff problem.

What you need to know...

  • Paying a little extra every month towards your debts can make a big difference
  • Pick the debt with the smallest balance or highest interest rate to pay off first
  • Knock out all of your bad debts as quickly as possible

Getting the big picture

A lot of experts approach debt like it’s a bad thing. People like Suze Orman, Dave Ramsey and others, demonize debt, saying that you should get rid of it at all costs. At Previsio, we take a bit more measured approach to debt.

As you know from the previous article in this series, debt can be good or bad depending on its risk and potential for long term value. We absolutely believe that knocking out all of your “bad” debts is a great plan. But as long as you can comfortably make payments on your good debts, there can be other, more productive, ways to use your money like investingInvesting doesn't just mean the stock market. You can invest in many things: a house, art, fine wine, an education, yourself!!).

If you want to put all of your extra cash every month towards paying off your debts, we aren’t going to stop you. It is a really powerful way to quickly pay things off!

So, if you have some extra cash you want to use to pay off a debt, how do you choose your top priority?

How to pick your favorites

There are two popular methods for deciding how to prioritize which debt you should target.

The first method takes a page from the book of small wins. You simply choose the debt with the smallest balance as your top priority and put all of your extra cash towards it. This can be great if you’re a person who likes making progress and quickly seeing the fruits of your labor.

The second method focuses on the debts with the highest interest rates. For this method, you just pick the debt with the highest interest rate, and put all of your extra money towards it. This method might take a little longer to feel like you’re making progress, but it actually saves you the most money in the end. Because you’re paying off the debts with the highest interest rates, over the long run, you end up paying much less in interest.

Play around with the tool below to see how each method would work with the selected persona's debts. See what you like best. You can also customize the priority order of each debt by dragging them around. Have fun!


You may have noticed a way to supercharge your debt payoff in the tool above (by rolling over payments). This works so well because, once you’ve paid off your first debt you have even more money available to pay off the next one. So, if you choose to roll everything you were paying for your first priority debt into the next one, you get a multiplying effect. Pretty neat!

If you are willing to rollover your money and supercharge your debt payoff, then sometimes (depending on your specific situation) choosing to pay off the smaller debts first will actually save you more money in the long run. If you’re interested, go back to the tool and play around with it a bit more. It might be something that saves you a boat load.

Wrapping up

Hopefully it’s pretty clear by now that paying a little extra every month towards your debts can make a big difference. Although we don’t believe that it’s necessary to pay off “good” debts as quickly as possible, using these techniques for paying off your “bad” debts is tried and true.

Challenges beyond debt

Coming up with a winning debt payoff strategy can put you miles ahead of where you would have been without one. But if you really want to accelerate your financial growth, there are many other things to be considered. Trying to live your life and juggle all of the things necessary to be financially secure can be really overwhelming.

We want you to just live your life! Let us handle all of the challenges, so you can live the lifestyle you want without worrying if things are on track. We’ll work together to come up with a personalized lifestyle plan that will help you live the life you want to live right now, while keeping the future in mind. Deal?

Join us!

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