First, a rule that comes before both
Pay every minimum payment you can, on every debt, before putting extra anywhere. Missed payments add fees, default charges and credit damage that outweigh any clever ordering.
Order 1: highest interest rate first (the "avalanche")
Consider directing any extra money towards the debt with the highest interest rate, while paying minimums on the rest. When it's cleared, roll that payment onto the next-highest rate.
- Best for: paying the least interest overall
- Risk: if your highest-rate debt is also large, it can feel like nothing is happening for months
Order 2: smallest balance first (the "snowball")
Point spare money at the smallest balance, regardless of rate. You clear debts quickly, which is motivating, then roll each freed-up payment onto the next smallest.
- Best for: people who've stopped and restarted before and need visible wins
- Cost: usually slightly more interest overall than the avalanche
Special cases worth knowing
- Priority debts — Government or tax debts, rent arrears, utilities and court fines can have harsher consequences than interest. Deal with these first even if the rate looks low.
- Debts with someone attached — money owed to family can carry a cost that isn't financial.
- 0% promotional rates — note when they end. The interest rate may increase significantly after the promotional period ends.
How to choose without agonising
Write your debts out with balance, rate and minimum. Sort the list once by rate and once by balance. If the two orders look similar, pick either — the difference is small. If the highest-rate debt would take more than a year to clear and you know you lose motivation, start with a small win, then switch.
One step for this week
Choose your order and write it down where you'll see it. A decision you can remember beats an optimal plan you abandon. Money Reset can do this comparison with the numbers you enter and keep the order in front of you.