Molly's Money: "How do you prioritize which debt(s) to pay off first?"


  1. I really like this concept! Last year I said no to, oh, just about everything. The result was that I was able to pay off all of my debt that existed outside of my student loans (somewhere between $8000-$10,000, depending who you ask). I even sold my car once I moved off the metro line in december, because I realized it was a small price to pay to be more financially stable.

    I have to say, I’ve been kinda lazy since I got down to just student loans, but this post is making me want to attack my student loans the way I did the rest of my debt. Thanks for sharing!

  2. Oh my gosh… I never thought of it that way but you’re right! I’ve been putting so much energy into paying off te credit card with the largest amount of debt and the smaller one has just been sitting there patiently (I still make payments just not as high). But it makes SO much more sense in so many ways to pay off that smaller one first!

  3. I think it’s important to that really, the most important thing about the Dave Ramsey method is to be CRAZY INTENSE about paying off your debt, even if you decided to not pay the smallest and instead the highest interest rate first.

    However I also wanted to point out that different debt has different possible outcomes. (Consider that when prioritizing) Student loans should generally be attacked AFTER all credit card debt, no matter the interest rates. As my sister pointed out, student loans usually always have ways of working with you. Either changing your payment plan, or deferring for various reasons (including unemployment) . And, when you think about it, they can take away your car if you dont pay the loan, but they can’t take back your education!

    P.S. School loan debt is forever until its paid. Even bankruptcy won’t eliminate it!

  4. Great post Molly! I love Dave Ramsey! My mom took me to go see him when he came to Houston a couple years ago and I’ve been on his plan ever since! Right now I’m on step 2 – the debt snowball…which I will be on for eternity, but it’s so rewarding to really focus and get things paid off!

  5. I know the debt snowball may not technically be the “smartest” way since I guess you should really pay down your highest interest rates first, BUT I think the debt snowball has been working best for me because like you said, sometimes you really need the motivation to keep going! I will have my first credit card paid off in two months! Then I really only have $1800 more consumer debt to go…the student loans are another thing completely lol.

    1. it really all depends on how you approach it – because i know for some people the debt snowball is the ONLY way for them to become debt free, thus making it the smartest for them. 🙂 i’m so glad you’re keeping up with it, katie!!

  6. This is awesome, Molly! I just attended a financial debt management workshop with a rep. from Ameriprise.
    He mentioned the ‘pay off the higher interest rate debt first’ approach like another commenter posted above, but practically, he said the snowball method works best for most people, and that is the approach I’ve been taking, too.

  7. I think your advice can be helpful to those that need the mental willpower. Howvere…I would suggest something different. If each of your debts has a different interest rate, then clearly the fastest way to become debt free (assuming you don’t “give up” halfway through) would be to pay the debt with the highest interest rate off first. If you feel overwhelmed with many different obligations, then consoldation is another option. If you carry a balance one three credit cards for example ($500 on each one). Then sometimes you can instantly “pay off” the other balances and on two of the cards and have it moved over to the other card and many times the credit card compant you are moving it to will provide some incentive as well like 0% for 6 months or 12 months but there may be a flat fee of a couple percent to move the balance in the first place which is negligible. This way you can feel a sense of relief by having two less debts to worry about and you can work to pay off as much as you can to one company (not worrying about the minimum payments to the others)…or worse yet, forgetting to make any payment.

    As a general rule, pay off your credit cards first as they generally have higher interest rates and do not open up charge cards from any store that offers you 5% off to open a new account. These have the ability to hurt your credit score which will hurt you when trying to get new debt down the road.

    As for consolidating student loans with car loans – it is really best evaluated on an individual basis. Many times there are fees involved which make this option less beneficial and it only makes sense if the rate you will be paying after consolidation is lower than the weighted average interest rate you were paying before (multiply the interest rate by the amount outstanding for each of your debts and then add them up).

    $20,000 student loan @ 5.00% –> 20,000*0.05 = 1,000
    $10,000 student loan @ 4.25% –> 10,000*0.0425 = 425
    $8,000 auto loan @ 8.5% –> 8,000*0.085 = 680

    Add each up and divide by total debt –> (1,000 + 425 + 680)/38,000 = about 0.05539. This means overall you are paying 5.539 % on all of the debt. If you can get a consolidated loan for less than this, it may be a good idea to consolidate (take one time fees into account as well)

    I studied finance in college, worked for the largest student loan provider upon graduating (Sallie Mae) and now work for a credit card company (Capital One).

  8. I just got a credit card but solely use it for gas for my car and small purchases to just gain some credit. I have a debit card for purchases, so that helps in terms of not racking up credit. I pay the full amount on 4 of my student loans and then have lowered the other 2 based on my low income. Honestly, there is NO way I could even have credit card debt because right now my entire paycheck goes toward rent, loans, my car, and medical expenses. Sigh. Being an adult is tough, but you have a great outlook and tips on it!

  9. Hey Molly! I enjoy your series. With the advise from a fellow blogger, I just picked up the Total Money Makeover from Dave Ramsey and I am tearing into it. Good luck with all of this…and YAY for baby!!!

  10. I love your finance series, Molly! It can be awkward to talk with friends about finances–especially if they’re not in the same place as I am (re: complaining about student loans while living home. Trust me, it gets even harder to pay loans when you also have rent and utilities and city expenses!), and my Mom and Dad get slightly high-strung about it. As for today’s post, I’m proud to say I’m in zero credit card debt. My parents have always made me really aware of paying it off completely each month (I use a debit card for the most part anyways) and I rarely open store checking accounts (except for my beloved Gap card). So right now, my one priority is putting as much as I can towards my college loans each month, while still being able to pay my other bills and have a bit of fun!

  11. This is really great advice, Molly. I got myself into some credit card debt right out of college, and I couldn’t agree more with the whole mental aspect of at least getting one debt crossed off the list. It makes everything else feel much more manageable!

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