Are you wondering how in the world you will ever pay off debt while continuing to maintain all of your regular day-to-day expenses in 2020? If so, it’s a great time to consider working with a financial planner to create a debt reduction and pay-off plan.

There are generally two ways to think about paying off debt:

1. Pay off debt with the highest interest first;

2. Pay off debt with the lowest balance first.

The method of debt repayment you choose depends on how you “feel” about the two options. Yes, feelings do impact money more than you might realize.

If you are someone who prefers to prioritize paying down the interest of one debt at a time, you will probably choose option number one. It’s a logical and practical way to approach debt payoff and it may save you a few bucks in interest over time. If you are someone who needs incremental accomplishments to stay on track, the second choice may be your best way forward. No matter the approach you take, make it a point to prioritize debt repayment.

Pay off the debts with the highest interest first

Paying off your debts by prioritizing the highest interest rate first, is a smart and admirable goal. Aiming to do so, especially as a goal for the new year, requires patience and determination. However, this effort provides great reward to the payee.

Take, for example, some of the most popular points and travel reward credit cards. While it provides you with plenty of perks, if you neglected to pay the balance monthly throughout the year, you may have a very high balance. Due to this mistake, you are incurring a very high rate of interest every day that you allow your balance to sit without payment in full.

If you prioritize this bill as your first debt to eliminate in 2020, you will be doing yourself a favor. You will save yourself interest over the long term, ultimately allowing you to free up your cash more quickly. Paying it off will also allow you to feel accomplished and relieve the stress of the daunting balance. This, in turn, will provide you with motivation as well as increased cash flow, that you can use to pay off your next highest balance debt.

Maintaining motivation

It’s important to highlight how challenging it is to stay motivated when paying off your high balance debt. Returning to our example of the many popular points and travel reward credit cards, if your highest interest rate credit card is the one with the largest balance, you may feel like you will never pay off your debt. This feeling of impossibility may tarnish your motivation on the whole and deter you from following through on your resolution.

Don’t allow your desperation to affect your motivation. Employ some tactics to maintain the drive to eliminate your debt.

First, create a debt repayment plan. Putting the numbers on paper and seeing how quickly you will be able to pay down the balance (if you remain dedicated to the cause) is a great reinforcement for staying on track. Your repayment plan will also serve as a daily reminder that will help you curb your expenses. The next time you feel the temptation to spend, consider what you will have if you prioritize paying off your owed debts.

Finally, practice incremental steps of accomplishment. Set small goals. When you reach them, celebrate. Don’t go crazy, but allow yourself the luxury of a little self-indulgence or a small reward. This will give you a milestone to look forward to, and allow you to avoid the burnout of total self-denial.

Pay off the debts with the lowest balance first

Many people need to see quick results to stay motivated during their debt repayment process. In this case, option number two can often deliver some quick victories in the form of removing debts from the list.

Let’s say you have a few smaller, unsecured debts. These may include doctor bills, debts to family, or a credit card you use infrequently that has a small balance. Perhaps, you have some collection notices for very small amounts – old medical or parking ticket bills or a debt – like a car, student loan, or furniture payment – that you are down to the last few payments for.

In this case, you may find that paying off a couple of smaller debts can quickly make that list of debts shrink significantly. This kind of momentum may motivate you to continue your journey toward debt-free living. Additionally, paying these smaller debts off will eventually enable you to contribute these funds toward your larger debts, allowing you to pay off your debts at a quicker pace.

The bottom line

Stop worrying, stop charging, and decide to make an impact on your debt in 2020. Some debts may take a few years to repay. But, if you curb your spending in the new year in small ways and shift those extra dollars to debt repayment, you will see your owed amounts reduced rapidly. Try to make a plan that eliminates all of your non-mortgage debt within no more than five years. Once you’ve accomplished this, prioritize increasing your retirement contributions to assure you’re on track for the type of lifestyle you envision in your golden years.

If you are at a loss as to how to start, seek assistance from a non-profit consumer credit counseling agency such as those who are members of the National Foundation for Credit Counseling (NFCC.org). Before you do anything drastic, ask for support from professionals who can work with you, such as a financial advisor, and work together to make a solid plan. Resolve to make 2020 about doing yourself a huge favor and ditching that debt!