How To Determine Which Debts Are the Most Important To Pay Off in 2021

Couple going through financial problems.
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If you racked up more debt than usual in 2020, you’re not alone. According to a recent survey conducted by the digital consulting firm Highland, 42% of Americans say they have taken on more debt amid the coronavirus pandemic than they normally would, with more than a quarter accumulating $10,000 or more in debt.

Find Out: How Much Debt Americans Have at Every Age

When you’re in that situation, it can be difficult to see the light at the end of the tunnel — you may not even know how to start digging yourself out of the hole. To pay down your debts efficiently, you need to come up with a game plan and start with the highest-priority debts first — but how do you know which one that is?

Here are the debts financial experts say you need to pay off first.

Prioritize Any Debts That Would Threaten Your Basic Needs If Left Unpaid

“Debt that affects someone’s shelter and security, such as mortgage debt, should be looked at first,” said Howard Dvorkin, CPA, personal finance expert and chairman of

Car payments should also be prioritized, especially if you use your vehicle to commute to work.

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“Credit card, medical and student loan debt can be looked at afterward,” Dvorkin said.

Tips: 19 Ways To Tackle Your Budget and Manage Your Debt

Next, Pay Off the Debt With the Highest Interest Rate

“The interest rate being charged is the key factor,” said Scott Schleicher, financial planning specialist group manager and senior financial advisor at Personal Capital. “Many folks prioritize the size of the debt rather than the interest rate they are paying — which is wrong.”

In most cases, credit card debt is the highest-interest-rate debt anyone has.

“These are the debts that should be addressed first,” Schleicher said. “Oftentimes cardholders only pay the minimum due each month. The interest being paid on these amounts is often painfully high, meaning the monthly minimum payment may not even decrease the overall debt. You might just be paying the interest only, and the actual debt never decreases. Attack high-interest debt with everything you can, even if you have larger debt elsewhere at a lower interest rate.”

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Helpful: 35 Useless Expenses You Need To Slash From Your Budget Now

Start by Paying Off the Lowest Balances First

If you have several sources of high-interest debt — say, you have debt on a number of credit cards with similar interest rates — start by paying down the lowest balance first. This is known as the debt snowball method.

“Doing so can provide a sense of accomplishment before moving on to larger amounts owed,” said Mark Nicholson, marketing director at Match Financial. “Studies have shown many to find success with the debt snowball method due to its motivational aspect.”

Tips: How I’m Sticking to a Budget and Spending Less During COVID-19

Once You’ve Prioritized Your Debts, Come Up With a Repayment Plan

“Regardless of your debt payoff strategy, having an accurate budget in place can help you stay on track with your finances and avoid overspending,” said Leslie Tayne, founder and head attorney at Tayne Law Group, a debt solutions law firm. “While it might be time-consuming, crafting a budget isn’t a difficult task. Look at bank and credit card statements, and add up monthly income and expenses. The difference between the two (if any) should be put towards paying down high-interest debt and emergency savings. If you’re spending more than you’re making or have little cash flow, look at areas where you can cut back in spending and look into money-making opportunities such as a side-gig or part-time job.”

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About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 
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