Which debt should i pay first

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The reason? Without a cushion, any emergency or even unexpected life event — such as an illness or having your car break down — could put you even more in the hole.

Once you have emergency savings, there are two common repayment strategies that financial experts recommend — the avalanche method and the snowball method. With the avalanche method, you pay down the debt with the highest interest rate first, then move on to the next highest interest rate and so on.

Over time, those who choose this method will pay less in interest by knocking out those high interest ones first. This is recommended for people who are disciplined and can stay the course, said Lyman. The highest interest rate debt might not be the smallest balance owed, and so using this method can seem like marathon instead of a sprint.

The snowball method is better for people who want to see progress quickly, celebrate small wins and use that momentum to tackle larger debt. In this method, you start with the smallest balance first. Skip Navigation. Not all debt is the same. So how should you decide which to repay first? VIDEO To get started with your debt snowball, list all of your current debts — and their current balances — from low to high. Continue to make the minimum monthly payment on all of your debts while putting as much extra money as possible toward your smallest debt.

Once that debt is paid off, put your extra money toward your next-smallest debt, and so on. To understand how credit scores impact your life, imagine your credit rating as a sort of financial blood pressure.

It requires monitoring, especially if finances appear incompatible with your lifestyle. Your credit score can help lenders understand how on top of finances you may or may not be. For larger purchases like a new home or car, your credit score and credit use will need to be on the favorable side. Any delinquency in payments will make a mortgage loan officer, or any lender, reconsider whether to offer you a loan.

If you have a polished credit image, banks and other financial institutions will likely consider you less of a risk as a borrower. Your credit cards could receive increases in spending limits, and your financial institution may extend handsome offers to keep your responsible business going. Focusing on your credit score could require making lifestyle changes to start chipping away at debt. You may see changing your habits — like cutting out daily takeout lunches and impulsive shopping — as a huge hurdle.

Since a chunk of your earnings will have to go toward your debts, you could lose motivation. However, giving up some comforts can decrease your debt and improve your credit score. Attacking your largest debt may feel like too large of a financial feat. Smaller debts can wait when compared to more pressing circumstances, like debts that have fallen into collections. What can you do in these scenarios? You can incorporate any of the three debt repayment options we mentioned, in whichever order or manner you desire.

If you want to consolidate your debt into a single monthly payment, you have a few options. You could transfer your existing credit card balances onto a balance transfer credit card , many of which come with lengthy 0 percent introductory APR periods.

The top balance transfer credit cards offer between 15 and 21 months of 0 percent APR on balance transfers, giving you ample time to start paying off your debt without paying interest on your transferred balance.

You could also take out a personal loan and use that money to pay off high interest debt. Lastly, you might want to consider consolidating your debts through a home equity loan or home equity line of credit.

Remember, if you fall behind on your mortgage payments, you run the risk of foreclosure — so think carefully before taking out a second mortgage to pay off other debts.