Which debt to pay off first
As we all know, there are many solutions to the same problem. This idea applies to debt payment as well. Many professionals provide different approaches to paying off debt. As I mention in many of my posts, the goal of this blog is to create an environment where readers are provided with relevant information of varying schools of philosophy in order to make informed decisions based on ones personal financial situation. This way of debt payment is Suze Orman’s way. Check it out.
Suze Orman states that there are fundamentally six (6) kinds of debt.
1. IRS Debt
2. Student Loan Debt
3. Personal Loan Debt
4. Mortgage Debt
5. Car Loan Debt
6. Credit Card Debt
1. IRS Debt is debt owed to the IRS. Suze declares that owing money to the IRS is the worst possible scenario and should therefore be focused on first. Why? Well, the IRS has the ability to legally seize your money via your bank account at anytime.
2. Next is paying off for your college education. Suze says that one reason to keep paying your student loan is that it cannot be discharged in a bankruptcy filing. The interest will continue to accrue. They can also garnish your wages to get their money back if you decide not to make your student loan payments.
3. Personal debt is ranked this high because of the deleterious effect it can have on relationships. You must be responsible to those who have loaned you money and make it a point to pay them back.
4. Mortgage debt is bad for obvious reasons. Does the term foreclosure mean anything to you? The last thing you want to lose is your home.
5. Car Loan debt is important as well if it is your means of transportation to work. If it assists you greatly in earning your income, be sure you make your car payments so that you can continue to earn much needed income.
6. Credit Card debt is unsecured debt. This means that if you don’t pay it, they can’t seize your home or your car. They also can’t take your money or seize your accounts. Many would say this is the most important one to pay off because of the high interest rates charged, however, this is another perspective on it.
Once again, it is important to look at your own financial situation and seek professional advice before making huge financial decisions. Educating yourself financially is the first step to financial success. Be well.