Many consumers in Garnerville or Rockland, New York, who have trouble handling their debts have a variety of types of accounts. They may have credit card debt spread over several different cards, as well as student loans, a mortgage and a car loan. Sometimes, it can all become a little overwhelming, especially if financial difficulties arise, such as those from an illness or job loss. When a consumer does have the good fortune to have a little extra money, the question arises which debt should he or she attempt to pay down or pay off first?
There are a number of schools of thought about this, with some experts suggesting that you first attempt to pay off the smallest debt to reduce the number of payments you have to make. There is a more promising approach, though, and that is to apply any funds available to the debt that currently has the highest interest rate. In both the short and long term, higher interest debt is more costly and harder to pay off, because a larger percentage of any payment goes towards interest alone. The compounding of that interest can trap you in a web of ever-expanding debt that can seem impossible to pay off.
Credit card debts, accordingly, are often good debts to attempt to pay off, as they currently bear much higher interest rates than most mortgages, car loans or student loans. In circumstances where it simply is not possible to pay them off because of circumstances like lingering unemployment or a major or chronic illness, discharging them in personal bankruptcy and getting a fresh start in life may be a viable option. Credit card debt is unsecured and not tied to particular assets such as a home or car. Often, secured assets can be preserved in the course of a bankruptcy proceeding. Whatever a person decides to do, the most important thing is to have thought things through and to be informed about all your available options before taking any action.
Source: MoneyTalks News, “Ask an Expert: Which Debt should I pay off first?” Jason Bushey, Aug. 29, 2013