A financial planner says the 3-step ‘debt fireball’ is the best way to balance paying off debt and saving money

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Some types of debt can be much more detrimental to your finances than others, according to Lauren Anastasio, a certified financial planner at SoFi.
If you have debt, focus on paying off the highest interest rate balances first, then funnel money into your savings goals, she says.
After you’re satisfied with your savings, consider putting extra payments toward your "good debts," like a mortgage or student loans.
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When there’s debt to repay, goals to save for, and endless temptation to spend, it can be tough to find a focus.

Here’s the good news: Debt isn’t a death sentence. In fact, some debt is necessary for getting ahead and doesn’t always need to be stamped out immediately, says Lauren Anastasio, a certified financial planner at SoFi, a personal-finance company.

"At SoFi we want to be more thoughtful about our approach to paying down debt," Anastasio told Business Insider. "The first thing we remind everyone of is: Not all debt is created equal. We have good debt, we have bad debt, and they should be treated very differently."

That’s the credo behind the three-step method SoFi experts created to help members prioritize their money goals. "We call this the ‘debt fireball method,’ and that’s where we attack the highest interest rate debt first, the bad debt," Anastasio says.

Crush the expensive debt, save for the future, and then tackle the ‘good debt’

The debt fireball is similar to the "debt avalanche" in that it focuses on high-interest debt first. Where it diverges, however, is in prioritizing savings before tackling low-interest debt.

The types of debt that can "empower people" or act as a tool to help you gain access to something positive are considered good debts, Anastasio says, such as student loans and mortgages.

"Yes, student loans are very burdensome, and yes, we hate to be paying them off 10 years after we graduated, but in the grand scheme of things, they are healthy for our credit — they’re low interest rate, they’re on fixed installments, which means as long as we make that minimum monthly payment, they will be paid off in full at some predetermined period of time," she says.

As for bad debt? "Credit cards are the perfect example," she says, and getting rid of those outstanding balances should be the top priority.

A balance-transfer card can be an invaluable tool for getting out of debt quickly because it allows borrowers to transfer their balances onto a new credit card, typically with a 0% interest rate for an introductory period of time. If you’re able to pay off your debt within the promotional period at a 0% interest rate, you have the potential to save a lot of money on interest.

If you have debt on multiple credit cards, you can consolidate your balances into one so you can make a single monthly payment, but note that you’ll be responsible for paying a transfer fee between 3% and 5% of the total balance.

"Once you’ve eliminated that high interest rate debt, even if you have student loans or a car loan or a mortgage, focus on funneling as much cash as possible toward your savings," Anastasio says. Savings goals should first and foremost include building an emergency fund and saving for retirement, and perhaps also putting away money for a down payment or travel.

"Having cash on hand, having liquidity, is hugely important, especially during times of uncertainty," Anastasio says. "Then, only once we’re truly satisfied and feel secure with that savings should we consider making extra payments to pay other debt off sooner."

There are various online calculators that can tell you exactly how many months you have until you’re free and clear of your debt, according to your current interest rate and monthly payments. If five years sounds like too much for your student loans, increase your monthly payment by $50 or $100 to start and see what difference it makes.

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