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What Debt Should I Pay Off First?

If you are struggling to pay off your debt, you are not alone. The truth is that a majority of people are carrying the weight of money owed. Even though many American’s are in debt, debt is not something that will just go away if you ignore it, and it should not be put off until the future just because it is normal to owe money. There are several advantages to reducing or eliminating debt. You will have more money to spend on a monthly basis, can improve your credit score, and save on interest. 

When you borrow money, you are required to pay interest over time. The longer you wait to pay off your debt, the more you will pay on the loan due to interest. Depending on your type of debt, your monthly payment may increase making it difficult to pay down the principal. This is likelier with revolving debt such as department store cards and credit cards.

It is important that as you work towards becoming debt-free, you take a balanced approach. Pay off your debt, while maintaining the essentials you need to live. You will have less money to spend on a monthly basis but, you’re on your way to being debt-free. Keep in mind that it’s only temporary.  

So, now that we’ve established how important it is to start paying off your debt now, let’s talk about how to get started.

Here are some tips for how to figure out what debt to pay off first.

Understanding Your Finances

Knowing how you got into debt is the first step to making a plan to pay it off and a great way to avoid adding any additional debt in the process. If you understand what has caused your particular case, you can also find a way to stop debt from taking over your life.

Over the years, we have worked alongside many people in debt, and from our experience and testimonies from our clients, we have compiled a list of the most common ways people get into debt.

  • Changes in employment status – unemployment or a reduction in pay due to reduced hours or wage cuts 
  • Money management – spending more money on wants instead of needs   
  • Medical expenses – needing medical attention and not having insurance or bills that are too high 
  • Unexpected bills – bills can be higher than expected and appear out of nowhere  

Take time to really think about how you ended up in debt to better understand where you stand with your finances. This will ultimately put you on a path to a solution that will build a better, stronger financial future.

Debts to Pay Off First

Now that you’ve figured out why you’re in debt, it’s important that you calculate the total amount that you owe. This can be really overwhelming. Just be honest with yourself about how much money you need to pay off your debt. That’s the first step to figuring out how to decide which debt to pay off first.

If you currently have a low credit score and are really looking to boost it, pay off as many of the smaller accounts you can. Credit cards are a great example. Compared to other types of loans, such as auto or mortgage loans, balances are much smaller. Though there are advantages to having credit cards or small loans, debt can accumulate quickly. The best way to avoid this is to curb spending and buy on credit only when you absolutely have to.  

Depending on how much debt you have, it may be a good idea to combine your debt into one simple payment. This reduces the number of accounts to keep track of and prevent bills from piling up. An easy way to do this is with an installment loan which offers one, affordable, monthly payment. Visit any of our locations and speak to a Sun Loan team member to get started.