Many residents of Oregon want to eliminate their debt and find a fresh financial start. Those who have large amounts of debt from student loans, auto loans, credit cards, and other debts, however, feel overwhelmed and have a lot of questions. Is it best to make a small payment to all of different creditors each month, start by paying off the lowest debt first or focus on paying off their credit card debt?
The best strategy is to pay credit card debt first because the interest rates are much higher than those found on installment loans used to pay for higher education or to purchase a car. If you owe money on more than one credit card, it is best to start paying down the card with the highest APR first. While it can be gratifying to pay off a small debt first and then move on to others, this will cost you more money in finance charges in the long run. True, the faster you pay off any debt—large or small—the more money you will save; but installment loans have much lower interest rates than credit cards and you will maximize your savings and make your money go farther by paying cards off first. Furthermore, paying off installment loans according to the payment schedule rather than before the expiration date will improve your credit score.
Even if you use this debt relief strategy and work hard to pay down your debts, you may encounter unexpected medical bills, become unemployed or face other financial hardships that make it impossible to meet the minimum payments. In this case, you may want to consider filing for Chapter 7 to discharge your credit card debt and stop creditor harassment. A personal bankruptcy attorney can help you get back on your feet.
Source: Money Talks News, “Ask an Expert: Which Debt Should I Pay Off First?,” Jason Bushey, August 29, 2013.