Which Debt Should You Pay Off First?

The default answer: highest rate or smallest balance

With every minimum covered, your extra money should go to one debt at a time. Two rules pick that debt:

• Highest APR first (avalanche): each dollar of that balance costs you the most interest per month. The SEC’s Investor.gov gives the same advice for several credit cards: pay down the card with the highest rate first while paying the minimum on the rest.
• Smallest balance first (snowball): you close an account sooner, which frees its minimum for the next debt and gives you a visible win.

On a $5,000 balance, one month of interest is $116.63 at 27.99% and $47.92 at 11.5%. That gap is what the avalanche is chasing.

If your smallest balance also has your highest rate, the two rules agree. When they don’t, the snowball vs avalanche comparison shows what each choice costs on a real example.

When a promo deadline changes the answer

Promotional rates don’t change how expensive a debt is in the long run, but a deadline can change what’s urgent.

Deferred interest. Some store cards and “no interest if paid in full” offers work this way. The CFPB explains that if the promo balance isn’t paid in full by the end of the period, you can owe all the interest back to the original purchase date. Being more than 60 days late on a minimum can also cancel the promo. If your plan won’t clear that balance by the deadline, move it to the front of the line, even ahead of a higher-rate card.

0% intro APR. When a 0% balance transfer ends, the regular APR applies to whatever balance is left from then on. There’s no back interest, so the urgency is lower. Our avalanche ranks these debts by their regular APR, not the promo rate, so the balance isn’t ignored just because it’s at 0% today. The balance transfer calculator shows whether you’ll clear it in time.

Two balances on one card. You don’t fully control which balance your payment hits. Under Regulation Z, the issuer must apply anything above the minimum to the highest-APR balance on that card first. In the last two billing cycles before a deferred-interest period ends, it must apply the excess to the deferred-interest balance first.

Secured vs unsecured debts

A secured debt is backed by something you own. The CFPB describes collateral as property, like a car or a home, that the lender can take if you don’t repay. Most credit cards are unsecured: there’s no collateral, but the lender can still report late payments, send the debt to collections, or sue.

That difference matters most when you’re behind. If you’ve missed payments on a car loan you need for work, catching up there may come before extra payments on a card, because the lender can repossess the car. The same logic applies to a mortgage and your home.

When every account is current, collateral usually isn’t a reason to prepay a secured loan. The Federal Reserve’s G.19 data shows average credit card rates well above average rates on new car loans and personal loans at commercial banks, so the avalanche usually puts a car loan behind your cards. For those decisions, see should I pay off my car loan early and our guide on whether to pay off debt or invest.

Debts in collections

A debt in collections needs a different kind of attention. Before you pay anything, the FTC says the collector must give you validation information: who the creditor is, how much you owe, and how to dispute it. If you don’t recognize the debt, you can dispute it in writing within 30 days.

Old debts need extra care. A collector has a limited time to sue you, set by state law and the type of debt. After that, the debt is “time-barred.” The FTC warns that in some states, making any payment, or even acknowledging the debt in writing, restarts that clock. Negative information such as a past-due debt can generally stay on your credit report for seven years. Consider talking to an attorney before paying a very old debt.

If you settle a collection for less than the full amount, get a signed letter first saying the payment settles the entire debt.

Other cases worth a second look

• You’re behind on several bills. Call your creditors before anything reaches a collector. The FTC suggests explaining your situation and trying to work out a new payment plan.
• Money owed to family. It has no APR, but you may choose to pay it early anyway. Put it in a custom order.
• Tax debts and court judgments follow their own rules and are outside what this calculator models.

For a full step-by-step setup, see how to make a debt payoff plan.

FAQ

Which credit card should I pay off first?

Pay the minimum on every card, then put extra money on the card with the highest regular APR to pay the least interest. If you’d rather close an account fast, target the smallest balance instead. Move a deferred-interest card to the front if its promo balance won’t be paid off before the deadline.

Should I pay off the highest balance or the highest interest rate first?

The highest interest rate saves the most money, because each dollar there costs you the most per month. Balance size alone isn’t a reason to go first. The only balance-based method, the snowball, starts with the smallest balance to get a quick payoff, not the largest.

Should I pay collections or current debts first?

Keep current accounts current so they don’t fall behind too. Before paying a collector, get the validation information and check the debt is yours and the amount is right. For old debts, check your state’s statute of limitations, since a payment can restart the clock in some states.

Should I pay off my car loan or credit cards first?

If you’re current on both, credit cards usually carry the higher rate, so the avalanche pays them first. If you’re behind on the car loan and need the car, catching up there may come first, because the lender can repossess the car. Compare your actual rates in the calculator.