o you made the decision to take care of your debts and repay them once and for all. The decision to pay off debts is a great start, but often people do not know what to do next. We consulted with Fairstone Financial partners to find out which debts are best paid first.
Think first about tax benefits
All debt is not “bad”
Most government-funded student loans include tax relief. Check if you qualify for a refund of interest paid on your loans to reduce the amount of tax you owe. If your student loan payments are affordable and advantageous from the point of view of your tax return, an immediate refund is not necessarily a priority.
It is important to note that tax benefits are not always greater than the interest you pay, especially if you are in a lower tax bracket. Pay attention also to the fact that private student loans do not offer the same tax benefits. To find out which student loans qualify for a tax break, visit this Government of Canada Web page.
Once you’ve examined all the tax considerations, choosing the debt to repay first is all about your own priorities:
To improve your credit score by paying off your debts
To repay first: credit cards that have the highest interest rate
The use of credit is the ratio of the balance of the card in comparison with your credit limit. A general rule is to avoid having a balance greater than 25% of your limit. Any balance above this amount can negatively affect your credit score. If you want to improve your credit score while paying your debts, it is good to start with cards with a balance greater than 25% of the credit limit. This is certainly a good approach if you plan to apply for a mortgage or car loan in the next two years or so.
To reduce the amount spent on repaying your debts
To repay first: credit cards and loans that have the highest interest rates
The highest interest rates are the most expensive in the long run. The sooner you settle these debts, the less interest you will pay overall.
If possible, accelerate payments for the debts that have the highest interest rates. Instead of two payments a month, make payments every two weeks (you will make two more payments a year). Also, try making additional payments when your budget allows. Read the fine print and check if a prepayment would be worth a penalty.
Significant progress is needed to motivate you to repay your debts
To repay first: the smallest loans and credit card balances
Small balances are easier to pay back in a few months, if not in a few weeks. If you feel overwhelmed by the larger debts, it may be best to start with the smaller ones. Every time you settle a debt, you will have a sense of success and you will feel more motivated to attack the rest. The reward will also be more immediate if you repay small debts first.
Still not sure which debt to repay first?
Think about getting a consolidation loan and look at this web-site www.erosloungemiami.com/what-is-debt-consolidation-and-the-way-to-avoid-loans Erosloungemiami.
If you still feel overwhelmed and want to settle all your debts at the same time, a consolidation loan can make repayment easier to manage. A consolidation loan with a one-time payment can also help you stay in control if you have trouble managing multiple payments and delays. You can ask at no charge or obligation a loan submission to find out if a consolidation loan would be a solution for you.
As you can see, the choice of debt to repay really depends on your goals. The debts you repay first depend on your situation and your financial plans. Anyway, no longer having debts one day is the most important, and it should be your ultimate goal!