Nivek Neslo—Getty Images
By Martha C. White
January 7, 2016

If you’re like the majority of Americans, you entered the new year with more holiday bills than you expected to rack up.

There’s no shortage of good advice out there about tightening your belt and making a plan to pay off those debts. But one big, really important point to factor into your plan is that not all holiday bills are created equal. Some can even damage your credit or your financial stability if you don’t get a jump on paying them off now. Here’s where to start:

1. Deferred-interest credit cards: Now, you might be saying, “What? Why should I pay off my 0% interest bills first?” That “free” financing is a useful hook for retailers who want to reel you in and get you to spend on big ticket purchases like furniture and electronics; one study found that around 60% of stores offer these deals during the holidays.

The catch with deferred interest is that if you don’t pay off literally every single penny of the purchase price by the end of the promotional period, all of the interest that would have accrued (usually at sky-high store card rates—see below) gets piled on. Another study found that you could be stuck with around $400 in extra charges on a $2,500 purchase, even if you had as little as $100 left to pay. So if you took this offer of “free money,” it’s in your best interest to make paying it off your top priority.

2. Store credit cards: So you signed up for that store credit card and got 10% or 15% off your first day’s purchase. That’s great, but that discount is going to be a drop in the bucket compared to what you’re going to be paying in interest, since the average APR for a store credit card is roughly 25% (and can be higher if you have iffy credit).

What’s more, these cards often have very low credit limits. Even a moderate shopping spree can leave you close to maxing out your available credit, which looks worse on your credit score than if you’d spent the same amount of money on a regular credit card with a higher limit.

3. The card with the smallest balance: After that, logic (and mathematics) would suggest that you should pay off the credit card debt with the highest APR first, because the less you have to pay to service your debt, the more you have to put towards the principal.

Some personal finance experts like Dave Ramsey suggest an alternate strategy dubbed the “snowball” method, where you pay down your smallest debt first, then move onto the next largest one and so on.

Because humans aren’t logical, when scientists studied the issue to figure out which method does a better job getting people to pay down their debts, they found that Ramsey’s snowball method did a better job getting people to pay off their debts.

Despite costing the borrower more in interest over the long run, paying off a small debt sooner is more motivating, which gives people an incentive to move onto their next outstanding balance. The scientists dubbed this “achievable subgoals.” Whatever you want to call it, if it helps you eliminate your holiday debt, go for it.

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