1. Credit Cards
Duh…..If you carry a balance on your credit cards, or even worse just pay the minimum, you need to make paying this off priority number one. Interest rates and fees that are charged can really make you bleed cash. Why do you think Visa and MC have so much money to advertise? Pay it down with anything you can, sell that 3rd car you don’t use, cash out a savings bond, or sell your 1st born. Do whatever it takes. After your done put them in a drawer and forget about them.
2. Car
Some would say it is not really necessary to pay off a car loan early because interest rates are traditionally low for qualified buyers, but many people are not a qualified buyer. You have a 7 year loan at 7%. That is too a long a loan, and too high an interest rate. Many people will trade in their car after a few years while still carrying a balance on the old car, and roll that into the new larger loan. It’s a cycle where a person never actually owns the car, and spends thousands on interest.
3. Student Loans
Now we are into ‘good debt’ if such things exist. This kind of debt does not hurt your credit score. Hopefully you have a college degree and a nice job to go along with your pile of student loans. If your rate is decent (Less then 7%) then you can take your time paying these down, but paying extra is still a good idea.
4. Home
Home loans are known as collateralized debt. The home is the asset that they would take from you if you could not make your payments. A home loan also will have no effect on your net worth; the 200k loan is offset against the 200k home that you bought. The argument is all over the board on this one so I will break it down.
Do Pay Extra If:
1. It is an interest only or ARM loan.
2. You plan to stay in the house for a long time
3. You want the satisfaction and good night’s sleep that comes from truly owning your home.
Don’t Pay Extra If:
1. You plan to move soon
2. You don’t fund your 401k to get the max company match
3. You want to use the money for other investments
4. You don’t have a slush fund set aside for major repairs or rainy days – put the extra into this instead
Suze Orman disagrees vehemently with you. Student Loans should be paid first because they cannot be discharged in a bankruptcy.
Many people get their student loans deferred so they can keep up with their credit cards. This is a critical error in judgement.
Hi there can I quote some of the material here in this post if I reference you with a link back to your site?