Which Debt Should You Pay Off First?
If you’re committed to paying off your debts, there’s no question that you need to prioritize them. If you have a significant amount of debt, you should begin by tackling the most expensive ones to pay off, which means the ones that will make the most dent in your credit score.
If you’re overwhelmed by the amount of debt you have or are just unsure about which debt to pay off first, you can also consider talking to a debt advice professional from a reputed firm like freshstartltd.com (or a similar one). He/she can provide guidance on the best way to prioritize your debts and help you create a payment plan that fits your requirements.
To have a fair idea of what that plan should include, you can also take a look at this blog:
Here’s how to know which debt should be paid first:
- Emotional and financial stress
It is important to know what you owe and what you have to pay off first in order to be financially prepared for your future. This is not a ‘one size fits all answer as different people have different situations, but some debts are more important than others. If you are debt-free and have credit card debt, you should pay off the smallest debt first since it has the highest interest rate. You can also make a list of debts and prioritize your pay-offs.
There are several reasons to prioritize your debt payments. The first is that each debt has a different impact on your financial situation. For example, if you have a debt that is offset by your income and you have to pay it off first, your money will go to work for you, and you will be able to use your money to pay the other debts. On the other hand, if you have a debt that is not offset by your income but you have to pay it off first, you may feel the pinch in your budget when you don’t make the payment.
Besides this, paying off your debt can ensure that you can be of help to your family members and friends when they are facing a financial crunch. For instance, if you have a debt, then there is a good chance that you would refrain from lending money to friends or relatives. However, if you address your issue first, then you can make it a point to help them by offering the amount they require (if you have the cash reserve to support this act).
- Interest rate
Interest rates are often confused with the interest you earn on your savings. While the two are related, they are not the same thing, and you should use a different strategy to keep your money growing. If you want to build wealth, you should always be paying off your highest interest rate debt first because interest rates can go up over time.
What is the best way to prioritize paying off your debts?
- Pay off all debts with the highest interest rate first;
Before you begin paying off your debt, you should consider which debts should be paid off first. The best rate for a loan is the highest rate available, so if you can get certain debts at the lowest rate, it is best to do so. It’s a great idea to pay off your debt with the debt you want to pay off first, since paying off the debt that carries the highest interest rate first can save you a lot of money.
- Pay off your debt with the lowest interest rate first;
Everyone has experienced the stress of paying off debt. With so many bills to pay, it can be overwhelming, especially if you have a lot of debt to pay off. But before you make a decision about which debt you should pay off first, think about the actual interest you’re paying on your debt. If you have a credit card with a low-interest credit card could take just months.
- Pay off your debt with the longest amount of time before interest accrues;
The way to get out of debt is to pay off your debt for the longest amount of time before interest accrues. The most common debt that people can pay off first is credit cards. And of all the credit cards, the credit card with the highest interest rate is the one that most people should pay off first. You can actually pay off a credit card with a 26% interest rate faster than you can pay off a credit card with a 15% interest rate! The reasons are simple: You can pay less interest on a credit card with a lower interest rate.
- Pay off your debt which will save you the most money.
If you are trying to save money for retirement or a down payment on a house, you want to first get rid of the most expensive debt.
The first thing to understand is that paying off debt, whether it be student loans, personal loans, or credit cards is good for you. While it may be hard to see, paying off debt is the best way to put money in your pocket, and that’s really what you want. And, the less debt you have, the less you’ll have to worry about in terms of paying your bills, which means that you can continue to focus on making money instead of spending money.