Paying Off Debts in the Correct Order

March 25, 2012 by  Filed under: Debt 

It seems like everyone has at least one debt to their name, with many other people tied down to entirely too many debts to count. Paying your debts can be depressing because it feels like the number will never get smaller. However, you might be contributing to the length of time it takes you to pay off your abundant amount of debt, simply by the order in which you pay them. If you could avoid paying extra interest, would you do it? Read on to figure out the best order in which to pay off your debts for good, and see how it can help you save a little cash in the end.

First things first, you should make a list of everything you currently owe money on, including the amount currently owed. It does not need to be in any particular order yet, as you are just making a visible list of your debt. Next, you will need to look up the interest rate of each loan, and write it down next to the amount currently owed. You will then put your list into order from the highest interest rate to the lowest. If you have 2 or more loans with the same interest rate, go with the one that has the higher amount owed.

Something you may run into with some of your debts and loans is that there are some with very low interest rates, but if you recently opened the account, you may not have noticed that the interest rate might be doubling in the near future. Look into each account and make sure that is not the case, and if it is, write what the interest rate will be and when it will go into effect. The point is that you want to have the most accurate picture of your debt situation as possible, so that you can go about paying off your loans in the correct order.

Start by paying off the highest interest rate loan or credit card, which will probably be a payday loan. If it is not a payday loan, pay more than the minimum each month, and continue to pay the minimum payment on your other debts. If it is a payday loan and you can manage to pay it off in one fell swoop, then do it immediately. Payday loans are notorious for having extremely high interest rates, so you want these off your financial burden as soon as possible.

Your next debt will probably be a store credit card of some sort, if you have one. These also tend to have pretty high interest rates, but the good thing is that they also do not usually have high balances, so you might be able to pay it off quickly as well. Credit cards of all types will likely be next, and then your personal loans. You should first focus on paying off unsecured personal loans, followed by any secured loans you might have, because unsecured personal loans usually have higher rates. Your car loan should follow, and then your mortgage. These last two usually have low rates.

Robin Wood
Personal Loan Quotes Online
Paying Off the Wrong Debt

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