Most people that are in some form of debt have probably heard someone say that it’s important to pay off the most expensive debts first and, this is absolutely true.
First prioritise your high-interest debt
Your most expensive debts are the ones where you’re being charged a high interest fee and/or expensive penalties and fees. This is usually in the form of credit card debt, retail store accounts and personal loans.
These are short-term, high-interest debts that many people are now getting into by taking out online cash loans that cost you a lot more than other debts such as your car and home loans.
You need to make a list of all your debts
Write down how much you owe in total, what the interest rate for each specific loan is and then prioritise them based on which ones are charging you the most in interest and fees. These “expensive” debts are the ones that you need to focus all your time and energy on paying off first however, do not overpay these unless you can pay the minimum payments on each and every debt on your list.
All secured debts are priority debts and should always be paid first.
Secured debts are debts here you have put up collateral, usually in the form of property, to secure the loan. It follows then that if you don’t make your mortgage payments you’ll lose your home, which is not a situation anyone wants to find themselves in particularly if you’re close to retirement or don’t have any retirement savings.
As you probably already know, unsecured, short-term loans like credit card and “payday” debt are the most expensive debts that you can have.
Making these your top priority and paying them off as soon as you possible can (provided that there are no early repayment penalties), should be your number one goal.