Debt is a reality of life for most of us. Even if we’re committed to saving and paying for cash whenever possible, credit fuels the financial system. As such, a smart financial plan includes smart use of credit.

Still, sometimes debt builds up despite our best intentions. Maybe you faced an emergency expense beyond what you saved for, or you’re experiencing a temporary problem with cash flow. The reason doesn’t really matter; if you find yourself in a scenario where you’re managing debt, this guide can help you get a handle on it.

We’ll look at the financial considerations and the psychological aspect of paying down debt so you can create a plan and stick with it.

The basics around debt

In general, there are two types of debt: secured and unsecured. We get into the details in our smart guide to debt, but there are two important takeaways when it comes to repayment:

• • Unsecured debt, such as credit card debt, can have a bigger negative impact on your credit score than secured debt. As such, high levels of unsecured debt could ripple out into other areas of your finances. (Credit score calculations are complex, and the type and size of your debt is only one part of the equation.)

• • Unsecured debt usually carries higher interest rates than secured debt, meaning it may cost you more in the long run.

Most lenders offer variable interest rates on unsecured debt. As such, it can be hard to know exactly how much you’ll end up spending in total interest, especially in a changing rate environment. Make sure you check your statements regularly and look at the annual percentage rate (APR) since this number includes any additional fees and service charges you’ll be required to pay, as well as your baseline interest rate.

Strategies for paying down debt

Understanding the types of debt and how rates work can help you come up with an effective strategy for paying it off. Start by listing out all of your outstanding balances. Note whether the debt is secured or unsecured and the APR, as well as the size of your monthly payment and what percentage of it goes towards interest versus principal balance. This can help you mentally assess the cost of carrying balances and putting off repayment.

Next, consider the two primary approaches for repaying debt: avalanche and snowball.

With the avalanche method, you aim to pay off your most costly debt first. This generally refers to the highest balance, but it can also mean any debt with exceedingly high rates. The goal is to reduce the amount you’ll pay on interest overall by going after the most problematic balance first. This ultimately helps free up money to put towards any other debt you may have, or to put toward other pursuits, like building an emergency fund or investing towards your future.

With the snowball method, you aim to pay off the smallest debt first. This may not make the most sense numerically, but it can create a psychological win for anyone who feels overwhelmed by debt. Once you clear one balance, you can eliminate that set of payments and use that momentum to start tackling the next biggest balance. You may pay slightly more in the long run by leaving the bigger or higher interest balances, but the best plan for paying off debt is the one that you stick with consistently, even if it costs slightly more.

Regardless of your approach, make sure to always pay off the minimum balance due on time; this is the most important component to keeping your credit score up. That can have a ripple effect as well: A higher credit score can mean better terms on any variable rate debt or new loans you take out. This can help you lower your risk of getting into trouble with debt and credit in the future.

In reality, you may select a combined approach that fits with your budget and headspace. We built a spreadsheet (as well as a guide for how to use it) that can help you experiment with different approaches to paying down your balances.