I’m wondering how other people prioritize debt repayment.

In my opinion, the size of the debt should not determine which debt gets prioritized, unless you’ve already tried unsuccessfully to do debt repayment in a more logical fashion, which is paying the least amount of interest by paying off the highest interest debt.*

  • You can tally up your debt and divide it yourself into ‘goals’ and ‘rewards’. They don’t have to be evenly spaced.
  • Consolidate your debt onto the lowest interest vehicle if possible, so that the lowest interest debt is the biggest (if you can do this, there’s no difference between size snowball and interest rate snowball)

There might be other considerations beyond interest rate… such as the potential consequence of NOT paying off the debt. There’s debt that cannot be discharged in bankruptcy (student loans). There’s secured debt (mortgage, car loan) where you can lose the asset that the loan is secured upon. And lastly, there’s unsecured debt, which threatens only your credit rating. If the possibility of bankruptcy is looming, then you may be better off going in that order.

Final thought: If the consequences of bankruptcy will be shorter/less than paying of your debt, it should be considered as a possible option. There’s not really a moral part of the equation — the companies that loaned money charged an interest rate commensurate with their risk.

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