The Three Tiers: How to Prioritize Your Debts
Every debt in your life falls into one of three tiers. The tier determines your strategy.
Tier 1: Predatory Debt — Eliminate Immediately
Any debt charging 100%+ APR gets paid first. No exceptions, no strategy debates. This includes:
- Payday loans (typical APR: 300–500%)
- Pawnshop loans (typical APR: 100–250%)
- Title loans (typical APR: 100–300%)
- Rent-to-own contracts (effective APR often exceeds 150%)
At these rates, a $500 payday loan can cost you $75 in fees every two weeks. That’s money hemorrhaging out of your life. Redirect every available dollar here until these are gone. Sell something, pick up a shift, skip a subscription month — whatever it takes. The interest on these debts is so extreme that the “snowball vs. avalanche” question is irrelevant. These are financial emergencies.
Tier 2: The Quick-Win Sweep — Clear It in 90 Days or Less
Once predatory debt is gone, look at your remaining high-interest debts (18%+ APR — typically credit cards, store cards, medical debt on payment plans). Now ask a simple question:
Can any of these be completely paid off within 30 days?
If yes, pay them off. Even if a slightly higher-rate debt exists, the interest difference over 30 days is negligible — usually a few dollars. What you gain is one fewer bill, one fewer minimum payment, one fewer login to track, and a real sense of progress.
After clearing the 30-day wins, expand the window:
- 60-day sweep: Any debts you can knock out in two months? Take them.
- 90-day sweep: Last chance for quick wins. If you can eliminate it in three months, it’s still worth the slight interest trade-off for the simplicity and momentum.
This is the snowball logic — but with a hard expiration date. You’re not committed to snowball order for years. You’re using it for a focused 90-day sprint to clear the clutter.
Tier 3: Pure Avalanche — Let the Math Win
Everything that survives the 90-day sweep gets ordered strictly by interest rate, highest first. This is pure avalanche territory.
At this point, you’re looking at debts that will take six months, a year, or even several years to pay off. Over those time horizons, the interest rate difference between debts compounds significantly. A 24% credit card balance versus a 6% car loan? Over 18 months, that rate difference translates to hundreds or thousands of dollars. The math wins, and it’s not close.
By the time you reach Tier 3, you’ve already built momentum from the quick wins. You’ve reduced complexity. You’ve proven to yourself that debts can be eliminated. Now you have the psychological foundation to stay the course on the mathematically optimal path — even when the next payoff is months away.