Many adults will have some debt at one point or another, and it can be difficult to pay off. And if you have multiple loans, you’ll need to figure out what to pay off first.
You could start small, or you could get rid of the highest interest rate. Think about your mindset surrounding debt and what would make you feel the best.
Keep reading to learn more about a few ways to answer the question, “Which loan should I pay off first?”
Why Pay Off Debt
If you don’t know what to pay off first to get out of debt, you may come to wonder why you should pay off your debt. Paying off loans and credit cards can do wonders for your credit score, and it can also help you feel better emotionally and financially.
After you pay off your debt, you can spend your money on more things, and you can take on more loans if necessary. You won’t have to feel bad about making certain financial decisions.
And if you ever find that you need more cash, you can get a short term loan more easily. You won’t have to worry about an outstanding balance to keep you from getting loans.
If you have one loan or credit card, it will be easy to pay it off. But if you have multiple forms of debt, you may ask yourself, what should I pay off first?
What to Pay Off First
To determine how to tackle credit card debt and other loans, you should figure out what to pay off first. Your financial situation will differ from someone else’s so there’s no one answer for, “which loan should I pay off first?”
There are a few methods you can use when determining how to tackle credit card debt and other loans. And luckily, there’s an option for everyone.
Some people are better at paying off debt if they can get a sense of gratification, while others want to save money on interest. Either way, you should determine in what order to pay off debt that works best for you.
The debt snowball is one popular method for paying off debt, and it focuses on smaller debts first. You determine how much money you can put toward debt repayment.
Write out the debts that you have as well as their interest rates, balances and minimum payments. Look at the minimum payments for your larger debts, and set that money aside.
Put the rest of your available funds toward the smallest loan. You’ll pay it off more quickly, and you can use the extra money to pay off your next smallest balance.
Repeat the process until you have one loan left, and you can put all of your money toward paying off that loan.
Who It’s Best For
The debt snowball method is perfect for people who need instant gratification. Paying off your smaller loans will happen sooner, so it can give you the motivation to keep paying off your debt.
You won’t have to wait as long to see results from your efforts, but you can still make progress toward each of your loans.
Unfortunately, this isn’t the best method if you want to save money when you pay off debt. If that’s what you want, consider another option.
The debt avalanche method is another popular choice for people with multiple forms of debt. With the system, you pay off your debt based on the interest rate.
Like with the snowball, you should list out all of your loans and credit cards. Include the balance, interest rate and minimum payment.
But this time, focus on the debt with the highest interest rate. Some credit cards can have exorbitant interest rates, and not paying them off can cost you a lot in interest payments.
So the debt avalanche can help you save money over the long term.
Who It’s Best For
If you want to save as much money as you can, you should pay off your debt with the debt avalanche. By targeting loans with higher interest rates, you can get rid of those interest payments more quickly.
But unless the debts line up, it may take you longer to pay off the first loan or credit card. So you’ll need to have some patience when using this method.
Still, it can be an excellent option if you don’t have much money to put toward debt repayment.
By Loan Term
While not as popular as the snowball or avalanche, you can pay off your debt based on the loan term. If you have a car loan with multiple years left, you can get by with the minimum payments.
But if you want to take out a personal loan, the term might be much shorter. In that case, you should focus on paying the loan with the shorter term so that you can pay it off in time.
Payday loans can be an excellent short term loan, but you still need to pay them off. Then, you can make sure you maintain a good credit score, which can help you get more loans in the future.
Who It’s Best For
If you have different loans and credit cards, consider their loan terms. You may find that you have more time to pay off certain loans than others.
And if that’s the case, you should consider paying off shorter loans first. It will help you tackle your debt in small steps, and it will free you of certain debts more quickly.
Once you pay off loans with a shorter term, you can move on to the snowball or avalanche to tackle the rest of your debt.
The Road to Debt Freedom
If you’re struggling with multiple forms of debt, you might be wondering what to pay off first. Paying off your debt can seem impossible, but you can use methods like the debt snowball or debt avalanche.
Once you pay off your debt, you can enjoy that sense of freedom and power, and you can even take on smaller loans if you need to. Then, you will know what payment method works best for you.
Are you ready to take on a small, short term loan? Claim your cash now.