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Prioritizing Debt Payoff
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There are many different kinds of debt, like student loans, mortgage, auto loan, credit cards, et cetera. I have a system for prioritizing how and when to pay those off, so get something to write with.
First, write down each type of debt, the interest rate, minimum monthly payment, and payoff amount. Once you can see them all, put them in order from highest interest rate to lowest. In general, your goal is to pay off your highest interest loans first, before aggressively saving.
I’m not in the “debt is bad” camp. I firmly believe that debt is a tool. If you have a low or 0% interest loan, it may not be worth it to pay it off. It may be better to keep to your payments and invest the extra.
There are many variables here. For example if you’re looking to buy a house, the mortgage company is going to look at your debt ratio and the monthly mortgage payment they would qualify you for. Making a payment towards a debt will help your credit score, but if it’s not enough to pay it off entirely that payment will still be considered part of your debt ratio so that doesn’t make sense. It may make more sense to put that amount in savings or an investment.
We cover ALL of this in the “Get Your Finance Sh*t Together” self-study course at confidentmoneypodcast.com!
Join our community at confidentmoneypodcast.com where we’ll share tips and resources, and you can suggest topics for future episodes.
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DISCLAIMER: I am not a financial advisor and this is not financial advice. My podcast is for educational purposes and is my personal opinion only. To make the best financial decision for your situation, please do your own research and if needed, seek the advice of a fee-based, fiduciary.
Music credit: Neon Fairies by Wolves
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