Debt management

Not all debt is equally urgent, high-interest debt (like credit cards) costs far more to carry than lower-interest debt (like some student loans or mortgages), so prioritizing which debt to pay off first matters. Two common strategies: the "avalanche" method (pay off the highest-interest debt first, mathematically saves the most money) and the "snowball" method (pay off the smallest balance first, for psychological momentum), both work, the right one depends on what actually keeps you motivated.

A worked example

Someone with $2,000 on a 24% APR card and $500 on a 5% APR card would save the most total money using the avalanche method (attacking the 24% debt first, since it's costing far more per dollar owed). But someone who finds it more motivating to eliminate an entire debt quickly might prefer the snowball method (clearing the $500 balance first) even though it's mathematically slightly less efficient, because sticking with a debt-payoff plan matters more than the theoretical optimum.

Key takeaways

• High-interest debt costs meaningfully more per dollar owed than low-interest debt, it isn't all equally urgent.
• The avalanche method saves the most money mathematically; the snowball method builds motivation through quick wins.
• The best strategy is the one you'll actually stick with consistently.

Common mistakes

• Treating all debt the same regardless of interest rate.
• Only making minimum payments across multiple debts with no prioritization strategy at all.
• Taking on new debt while still working to pay off existing high-interest debt.

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Sources and further reading

• Investor.gov: Save and invest
• CFPB: Ask CFPB, answers to money questions
• MoneyHelper (UK): free, impartial money guidance