If you’ve resolved to pay off your debt, that’s good. But how do you determine which debts to pay off first? The answer can be different for everyone.
There’s no doubt that Americans have a lot of debt. The Center for Microeconomic Data found that U.S. household debt reached a new peak in the fourth quarter of 2017, rising to $13.15 trillion. The CMD said that balances rose 1.6 percent on mortgage loans, 3.2 percent on credit cards, and 1.5 percent on student loans during the quarter.
The odds are high that you, too, are dealing with plenty of debts each month. Here are some factors to consider when deciding which ones to attack first.
When to attack unsecured, high-interest debts first
For most people, it makes sense to attack the highest-interest debts first. These are usually unsecured debts such as credit cards and personal loans. With an unsecured debt, there is nothing for the lender to repossess if you don’t make payments.
Student loans are another example of an unsecured debt, but they generally don’t come with sky-high interest rates. You’ll save more money by paying down a $5,000 credit card balance at 18 percent interest than you will a student loan with an interest rate of just 4.5 percent. Debt with higher interest rates grows much faster. If you only make the minimum payments on your credit cards, it could take you years, and loads of interest, to…
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