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How to prioritize debt payments

What we'll cover

  • Different types of debt

  • Best practices for debt management

  • Tips to help pay down debt

For most, debt is a part of everyday life. In 2023, U.S. households' outstanding debt reached a total of $17 trillion. From student loans to credit card debt to mortgages, managing that debt can feel like a steep uphill climb.

First, take a beat, find your center and breathe deeply. Then, follow these three tips to prioritize your debt repayment without sacrificing your other money goals.

Plot out your priorities

Organizing your debt is essential to getting a handle on it. Begin by listing your loans all in one place. Include all the details: balance, lender, monthly payment and any important dates. Don't forget to detail minimum payment requirements and any possible late fees.

Next, identify your good debt vs. your bad debt. Not all debt is bad. Good debt (for instance, a mortgage) helps you build credit and strengthen your financial health, as long as you're making regular, on-time payments. These kinds of loans are seen as wealth-building investments and establish you as a reliable borrower (a win-win!).

Bad debt includes things like credit cards, auto loans, personal loans and payday loans. You want to pay this debt off first. Lenders often flag these types of loans because they're seen as sign you're living beyond your means. So, the longer you take to pay this debt off, the more it can hurt your credit score and overall financial health, especially if payments are late.

Organizing your debt is essential to getting a handle on it.

Mind your method

You can take different approaches to pay off debt. If slow and steady regular payments sound like your speed, the snowball strategy might be the right fit for you. If you're paying down good debt, this approach is ideal to reap the benefits of being a responsible borrower.

For those struggling with too many lenders, debt consolidation might be the right fit. With this strategy, you manage just one payment and may reduce your interest rate too.

Or maybe you need some outside help. If you've reached your breaking point, a professional credit counselor or debt consolidation can help you get a handle on your debt and build a plan to start tackling it.

You'll want to consider your other financial goals, income, budget and your own personal habits when determining the best debt management approach for you. Start with this quick quiz to see what might meet your debt needs.

Use all of your tools

Whatever method you choose, the same tools you use to budget and save toward your other financial goals can give your debt management a boost. For instance, sticking to a regular budget like the 50/30/20 approach can ensure you're always setting money aside for debt repayment. (Get started with a free template .)

If you're a super saver , consider treating loan repayment the same way you would your next vacation. Set a little aside each month to put toward that debt. Tools like Ally Bank's spending and savings buckets can help you automate that saving and meet your goals even sooner.

Plan, prioritize and prosper

If you're staring down a mountain of debt, it's easy to be overwhelmed. It might seem impossible and like you'll never reach the top. By mapping out a plan, you can divide and conquer and take it one step at a time.

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