Which debts should I pay off first?
The distinction between priority and non-priority debts, and the two common repayment orders for the rest.
- Difficulty
- beginner
- Time
- 30 min
- Read
- 2 min
Short answer
Deal with priority debts first — those with the most serious consequences, such as rent, mortgage, council tax or rates, and utilities — before anything else, regardless of interest rate. Then tackle the rest by interest rate or by smallest balance.
The most important distinction is not interest rate but consequence. A debt that could cost you your home or your energy supply matters more than one with a higher rate, however counter-intuitive that feels.
What you'll need
- A list of all debts
- Statements (optional)
Step by step
- List every debt with its balance, rate and minimum payment.All of it in one place. This is uncomfortable and it is the only way to make a plan rather than react.
- Separate priority from non-priority debts.Priority debts have serious consequences: rent, mortgage, council tax, energy, court fines, tax. These come first regardless of interest rate.
- Always pay at least the minimum on everything.Missed payments damage your credit file and add charges. The minimum on all, then extra on one target.
- Choose an order for the non-priority debts.Highest interest first costs least overall. Smallest balance first gives quicker visible wins, which helps some people stay with it.
- Put every spare payment against a single target.Spreading extra payments across everything makes very slow progress on all of them. Concentrate on one until it is cleared.
- Check for interest-free or lower-rate options.Balance transfers, consolidation. They can help, but only alongside stopping new borrowing — otherwise the balance simply rebuilds.
- Contact creditors early if you are struggling.Most have hardship processes and will freeze interest or agree a plan. They are far more helpful before arrears build up than after.
- Get free debt advice rather than paying for it.Free, regulated debt advice charities exist in most countries and are better than commercial debt management companies that charge fees.
Tips
- Never pay a company that charges for debt advice or promises to write off debts. Free regulated services do the same work better.
- Interest freezes are more achievable than people expect. It is worth asking explicitly rather than assuming the answer is no.
- This is general information. For serious debt, speak to a free regulated debt advice service — the specifics matter enormously.
Common mistakes
- Paying the highest-interest debt while ignoring rent or council tax — Priority debts have consequences that far outweigh interest — eviction, disconnection, court action. They come first.
- Ignoring letters from creditors — It escalates the situation and removes the options that were available earlier. Contact them before arrears build.
- Consolidating without stopping new borrowing — The balance rebuilds on top of the consolidation loan, and the position is worse than before.
Questions people ask
What is a priority debt?
One where non-payment has serious consequences — rent, mortgage, council tax or rates, energy, court fines and tax. These should be dealt with before higher-interest debts like credit cards.
Should I pay off the highest interest debt or the smallest first?
Highest interest costs least mathematically. Smallest balance first gives quicker visible progress, which helps some people sustain the effort. Either is reasonable once priority debts are covered.