A common mistake in paying of debt is to pay off the smaller debts first. While this may make you feel good — it is great to see debts go away — a better option would be to pay off the loans that cost you the most. Even if it takes you longer to pay off the entire amount, having the least amount of debt on your expensive loans is the most financially prudent course. Paying off your most expensive loans first is the way to get there.
Of course you should continue to pay on all of your loans. Just apply any extra money toward the loan that has the highest cost. Usually this is the loan with the highest interest rate, but when working with house loans, there may be other fees like PMI insurance that drive the cost of the loan up even if it isn’t specifically interest.
By paying off your most expensive debt first, you reduce the amount of money that goes toward interest. This will allow you to move the money that was going toward interest to the principle which will let you pay off your debts and the fastest rate possible.
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