This coming new year, I recommend taking steps towards a complete debt payoff. Getting your loans paid will not only lighten your financial burden for the next 12 months, it will also help you start with a clean slate and potentially buy a home. Based on a report by the Federal Reserve, the average household in the U.S. has over $135,000 worth of debt. When the median income of households is just barely touching the $60,000 mark, this is proof that people are living way beyond their means.
My name is Jacques Poujade, Managing Partner at LendPlus. Our company is a direct lender in Aliso Viejo, California. I have worked in the financial services industry for more than 30 years and I would like to share with you the most important steps you can take for a fresh start in 2019.
Your debt payoff mission for the New Year should focus on the types of debts that will make the most impact and help improve your finances once they are scratched off your list. Here are my recommendations:
High-interest credit cards with high balances should be paid off as quickly as possible. High interest rates will take a serious toll on your cash flow. This is money you could use to spend for other things that you need and enjoy. Paying off credit cards with high interest rates will allow you to save on credit card charges.
However, if you want to prioritize getting rid of the whole credit card balance, consider paying the credit card that has the lowest balance instead. Once you pay off the debt in its entirety, you can then take the necessary steps to eliminate your other credit card bills gradually.
Next on your debt payoff list should be credit cards with lower interest rates. Keep in mind that while the rates are lower, they are still interests that pile on the amount of your debt. The earlier you pay these off, the better it will be for your credit score. After all, credit card debts are considered negative debts and can leave a less-than-desirable impression on creditors. This is not something you want especially if you are planning on buying a house later.
Your car loan should be the next item on your debt payoff list. Paying off your car loan early will help you save on interest and improve your debt-to-income ratio. You will also get to enjoy better cash flow every month, with extra money that can go to your savings, hobbies, gifts, or that vacation fund you have been wanting to save up for. Cars are depreciating assets. They lose their value over time. Paying off the loan early will help you avoid an upside down car loan, wherein the value of the car is lower than what you owe.
Many people carry the burden of student loans long after they graduate, so it is only natural that you want this item scratched off your debt payoff list. Student loans could hurt your finances and when you have the chance, try to pay these off as soon as possible. Student loan interests can accrue over time, which could leave you deep underwater if you are not careful.