Filing bankruptcy for credit card debt or other types of debt eliminates the need to prioritize one debt over another. However, if you aren’t ready for bankruptcy, it’s important to understand which debts to deal with first.
If you’re like most people considering bankruptcy, you have a variety of different kinds of debt. Although medical debt or credit card debt alone is enough to drive someone to bankruptcy, the average person has a combination of different debts.
If two of the types of debt you’re dealing with include credit cards and installment loans, how do you know which to make a priority? Which should you try to pay off first?
The answer to this question is simple: It’s credit card debt.
Installment loans include things like student loans, mortgages, and car loans. These loans tend to have lower interest rates and in the case of student loans, do not cause as dramatic a shift in your credit score if you fall behind.
However, it’s important to note that if you are facing the threat of foreclosure on a mortgage loan or repossession on a car loan, you’ll want to prioritize those over all other debts. You should only make credit card debt the main priority when you’re able to meet your monthly payment obligations for your other loans and want to put extra money toward paying down debt faster.
Why Do You Want to Pay Off Credit Cards as Quickly as Possible?
There are several reasons you’ll want to eliminate credit card debt if you’re able to pay all of your other bills. For instance:
- Paying more than your minimum amount due on a credit card and reducing your balance helps your credit score. If you’re paying all of your debts on time and you want to boost your score higher, put as much as you can toward paying off credit card debt as quickly as possible. If you can, pay off the entire balance every month.
- Paying down credit card debt as quickly as possible saves you money. Credit cards tend to have very high-interest rates. This means you’ll pay far more for an item than you think once you factor in interest. The sooner you’re able to pay off your credit card balance the more you’ll save on the interest you pay to the credit card company.
- You’ll take advantage of tax benefits offered to mortgage holders. One of the benefits of having a mortgage payment is that you can use it on your taxes. This varies from person to person and their tax situation. However, nobody gets to claim their credit card debt on their income taxes, so there’s no benefit to keeping it.
Are There Any Exceptions?
There is one exception when it comes to prioritizing credit card debt over installment loans and that’s so-called payday loans.
Payday loans are high-interest short-term loans that are paid in installments. Most people turn to payday loans when money is tight and they need to pay something quickly. Payday loan lenders understand the desperation of their loan applicants and prey on this desperation by charging very high interest rates.
Keeping a payday loan around in favor of paying extra on credit cards means you’ll pay more in the long term.
The best thing you can do when it comes to prioritizing debts is to look at your interest rates. As long as you’re able to meet your minimum payment obligations, put any extra you have toward the highest interest loan.
Filing Bankruptcy for Credit Card Debt Helps You Eliminate All Types of Debt
If you’d like more tips on dealing with debt or your debts have gotten out of control and you need to take drastic action, contact the Law Office of Robert M. Geller at 813-254-5696 to schedule a consultation.