What is the most important debt to pay first? The first thing that comes to mind is a credit card, but this is not always the worst kind of debt. In fact, there are several good reasons to pay off other debts first. Carefully analyze your financial situation to understand exactly which debt is more important to you.
Which of the worst debts is only one part of the equation. It is also necessary to determine which of the obligations will affect more your credit history, your general goals and financial stability. Review the following points before aiming for complete credit card cancellation.
How to determine which debt is more important?
Credit card debt can be really dangerous due to the high percentage. It is believed that the most common types of debt – credit cards, mortgages, non-payment of taxes and car loans. Very often, people pay only the minimum credit card payment, and some of them spend again the amount that remains on the card after interest is withheld. This state of affairs can last for a very long time without changing the situation in a positive direction. On the other hand, non-payment of a mortgage loan can lead to the loss of the apartment in which your family lives. And if you don’t pay for a car loan, you can be taken away from the car you drive to work, having lost that due to frequent delays, your financial situation will not improve.
It is difficult to decide which of the debts is the worst, and which of them needs to say goodbye first of all. It is necessary to look at the situation from the other side. The worst debt that you can not pay on time. Without paying on time, your debt grows exponentially and, at best, you have to borrow money to pay your bills.
Do not forget the credit history
If you do not regularly have time to pay your debts, it will negatively develop on your credit history. Your credit account must be treated with great responsibility. Now, perhaps, you think that you will never take a new loan. But tomorrow the opinion may change, and you want to buy a house or large household appliances. And having a good KI, you can count on more favorable conditions for a loan.
Deciding for yourself which debt is more important, do not forget about the credit history. It is important to remember that if you begin to extinguish debts regularly, it will not change your CI in one moment. Depending on the degree of neglect of the situation, you may need time from several months to several years. To get started, find out your credit history, set up effective payment reminders and start reducing your total debt. Stop using a credit card, aim at extinguishing the biggest debt, not forgetting to pay smaller ones on time.
Develop a plan
There are two effective options, choosing and adhering to one of which, you can get rid of loans. Any plan should always have an end date. If you want to achieve financial freedom by 2020, you need to act today. So, the first option is to aim at extinguishing, first of all, the largest debt. At the same time, of course, you need to make the minimum payments on the remaining loans. The point is that the biggest loan has the largest amount you pay for using the loan.
The second option – on the contrary, to put on the machine a payment of a large loan and aim at smaller ones. First of all, repay the smallest loan – this will give you confidence that it is really possible to get rid of debts and you are already on your way to this.
Remember your finances
One desire to achieve the goal, as you know, is not enough. You need to face the truth – whatever the debt of all you would consider most important to you, you can pay as much as you can. If you have a particularly acute situation, try to communicate with the lender and revise the loan agreement to reduce monthly payments. Consider whether there is a way to earn more while paying off debts or how to save on other expenses. You need to take control of your home money.
In no case should not forget about the responsibility for tax payments. The amount of payment, in case of your ignoring, will grow with penalties. If you completely run the situation your property can be described.
Only you yourself can decide which debt is more important. Determine the amount you can pay on a monthly basis, determine which loan has the largest amount of payment for use, which debt affects your credit history more and how important it is to you. And do not forget about the family budget as a whole.