Prioritizing Your Debts During Repayment
When you start to create your debt repayment plan, you may feel overwhelmed if there are many different creditors you need to pay back. Rather than trying to evenly divide your money among your debts, you should prioritize them based on factors such as the total amount owed and interest rates.
The following are some factors to consider as you figure out how to prioritize your debts:
- Types of debts: Certain types of debts should take priority over others due to the amount of debt, the interest rate and the likelihood of the creditor coming after you.
- Interest rates: Interest rates are one of the biggest factors to consider during debt repayment planning. In general, you should pay off high-interest loans first, especially if the balance is still large. Pay the minimum amount each month on those debts with lower interest rates or balances while focusing on the debt at the top of your list. Once you’ve paid off your debt with the highest interest rate, you can move on to others.
- Good debt versus bad debt: Not every debt you have on your record is bad for your credit rating. Some debts, such as mortgages and student loans, are considered “good” debt and can actually help you get better interest rates on other types of loans. However, outstanding credit card debt can wreak havoc on your credit rating in some circumstances.
- Savings: As you plan your debt repayment process, you should always leave at least a little room for savings. If you run into an emergency situation, the last thing you want is to increase what you already owe. You might not be able to put as much into savings initially as you would like, but it’s important to at least set aside something each month.
To learn more about your options, consult with an attorney at Miller Law Group PC, working as a debt relief agency serving central Virginia.