Episode 17: Prioritizing Debt Payoff
There are many different kinds of debt – student loans, mortgage, auto loan, credit cards, and more – and a system for prioritizing how and when to pay them off. First, write down each type of debt, the interest rate, minimum monthly payment, and payoff amount. Once you can see them all, order them from highest interest rate to lowest; in general, the goal is to pay off the highest interest loans first before aggressively saving. Debt isn't inherently bad – it's a tool. If you have a low or 0% interest loan, it may not be worth paying it off early; it may be better to keep to the payments and invest the extra. There are many variables here, especially around mortgages and debt-to-income ratios that affect qualifying for a loan.
Key Takeaways
List every debt with its interest rate, minimum payment, and payoff amount before deciding what to prioritize.
Generally, the highest interest debt should be paid off first, before aggressively saving.
Low or 0% interest debt isn't necessarily urgent to pay off early.
Mortgage debt-to-income ratios factor into which payoff strategy makes the most sense.
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Music credit: Neon Fairies by Wolves
Note: This episode is from our previous podcast, Confident Money.
