Personal Finance Corner Reader Question: Which Debt to Pay Off First?

I recently received this question from a Personal Finance Corner reader:

My husband and I are in our late forties. We both work full time, have a mortage which we have refinanced once already and now have a maxed out equity line attached to our mortgage. ( we recently paid for our daughters wedding and bought a used trailer near the beach). I want to maximize my debt reduction by applying as much as I can to the debt we have. The only other credit debt we have is a visa card with less than 4,000 and a car payment which we recently traded our 4yr old car in for a used car with lower monthly payments. So, my question is, do we apply the debt reduction payment to the visa first, then move to the equity line once thats paid off?

This is a great question. As I point out in my video on the steps of aggressive debt reduction, it is important to focus on one debt at a time in order to maximize your efforts. While paying the minimum on all your debts, you should pick one debt and pay it off with extra money first.

In the case of this reader, I would definitely pay off the credit card debt first. Debts should be ordered for pay off in one of two ways: 1. smallest balance amount to largest or 2. highest interest rate to the lowest. Pick one ordering method, and line up all your debts for pay off.

I assume that the credit card qualifies as both of these things. And, due to the recent emergency Fed rate cut, your interest rates will drop, making your debt payment more effective, since less will be going to interest.

I would also consider adding the car loan into the mix. Might as well get that out of the way as well. And, when you get the credit card debt, HELOC and car paid off, I'd consider accelerating the mortgage pay off as well. As you move toward retirement, you want to be as debt-free as possible.