Which Debts Should You Pay First?
When prioritising debts, first ensure secured debts like your home loan and vehicle finance are current, because non-payment risks repossession. Then direct extra funds toward the highest-interest unsecured debt (usually credit cards and personal loans) to reduce total interest. If you are over-indebted across multiple accounts, debt review may be more appropriate than choosing which account to pay.
Key Points
- Keep secured debts (home, car) current to protect assets.
- Then target the highest-interest unsecured debt.
- Reducing high-interest debt saves the most over time.
- If over-indebted, debt review may be the better route.
Protect secured debt first
Secured debts — your home loan and vehicle finance — are backed by assets. Falling behind risks repossession or foreclosure, which has serious consequences. Always prioritise keeping these current, because losing your home or car is far more damaging than carrying unsecured debt.
If you cannot keep secured debt current, seek help immediately, as this signals serious over-indebtedness.
Then target high-interest unsecured debt
Once secured debts are current, direct any extra funds toward the highest-interest unsecured debt — typically credit cards, store cards and personal loans. This 'avalanche' approach minimises the total interest you pay over time.
Some people prefer the 'snowball' approach of clearing the smallest balance first for motivation. Both work; the avalanche saves more money. See our comparison guide.
When prioritising is not enough
If you cannot meet all your minimum payments even after prioritising, you are likely over-indebted. In that case, choosing which account to pay is less useful than addressing the overall affordability problem through a financial assessment and, if appropriate, debt review.
Debt review restructures all applicable accounts into one affordable payment, removing the need to juggle.
Frequently Asked Questions
Worried That Your Debt Has Become Unaffordable?
Debt Guidance can assess your income, essential expenses and debt commitments to determine whether debt review may be appropriate.
Reviewed by Carolina Guevara Harris
Registered Debt Counsellor · NCRDC3152
Last updated: 17 September 2025
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