How to Prioritize Your Debts and Decide Which to Pay First
When you have multiple debts, it can be difficult to prioritize how to pay them off. There are many choices, but if you make the wrong one, your debt snowball could turn into an avalanche.
That’s why D&A MacLeod offers advice for smart strategies to start paying off your debts.
Which debts come first?
One approach that works reasonably well, depending on the differences between the interest rates of your debts, is the “snowball” approach. If you chose this approach, you could pay off the smallest debts first. As each debt is paid off, you would use the money you usually paid towards the other debts and apply it to your main debt. Sometimes, especially when the debt is smaller, paying off the highest interest debt first is a better approach. It also feels good to pay off a small debt faster and gives you a sense of accomplishment to help you finish paying off your debts.
How to distinguish “good” vs “bad” debt
There are “good” and “bad” types of debt. For instance, a mortgage can be considered a good debt. The amount you borrow may be the highest of any debt you have, however with each payment you own more and more of an asset. Student loan debt is another example of a “good debt”. This is because you are increasing your earning power when you go to school. It is also tax deductible in some situations depending on who you borrow from and where you live.
Some examples of “bad” debt include accumulating credit card debt for meals out, gifts or basic necessities. Once purchased, they are consumed and then you are still paying for them later. Personal bank loans are also considered “bad” debt.
Begin with a Free Consultation
If you need assistance with prioritizing your debts and planning for your financial future, we invite you to speak to us today. Our team of licensed insolvency trustees can help you determine the best ways to begin paying off your debts and also provide assistance with debt consolidation. With locations across Eastern Ontario, you can call our team directly at 613-699-2538 or contact us online or for a free, no-obligation consultation and let us help you on the road to a new beginning™.