{"id":7266,"date":"2023-02-08T17:16:13","date_gmt":"2023-02-08T17:16:13","guid":{"rendered":"https:\/\/dollarhand.com\/?p=7266"},"modified":"2023-02-17T12:23:48","modified_gmt":"2023-02-17T12:23:48","slug":"how-to-decide-which-debts-to-pay-off-first","status":"publish","type":"post","link":"https:\/\/dollarhand.com\/guides\/how-to-decide-which-debts-to-pay-off-first\/","title":{"rendered":"How To Decide Which Debts To Pay Off First"},"content":{"rendered":"

People with loans, credit cards, and other debts often struggle when deciding which of these debts to pay off first, and where the money for repayment ought to come from. Paying off debt is an incredibly important financial decision, and it is important to prioritize your repayments. This article aims to give you some ideas about how to prioritize your debt repayments.\u00a0<\/span><\/p>\n

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Should I Use Up My Savings To Pay Off Debt?\u00a0<\/strong><\/h2>\n

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People often say that you need to have a 6 month emergency fund. While this is very good advice under normal circumstances, it can be worth dipping into this fund to pay off a very urgent debt, such as credit card debt.<\/span><\/p>\n

As for long term savings, it can be a good idea to use them to pay off any debt you have with interest. This is because the interest that debts rack up tend to be significantly higher than the interest gained by money sitting in your savings account. Credit card debt, for example, will cost $220 in interest in one year (at 22%), whereas a savings account at 3% will only earn you $30 in the same time period.\u00a0<\/span><\/p>\n

If you use your savings to pay off your debt, you will save more money in the long run. On the flipside, if you prioritize saving over paying off your debts, it will cost you more in the long run.\u00a0<\/span><\/p>\n

Some exceptions to this rule are cases in which the cost of debt is lower than the benefit gained by saving, and cases in which you are locked into debt that punishes you for early repayment (such as some mortgages).\u00a0<\/span><\/p>\n

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What Are Priority Debts?<\/strong><\/h2>\n

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Priority debts<\/a> are debts that carry the most serious consequences if you do not pay them. They are not necessarily the largest debts, or the ones with the highest interest rates. However, they are the debts that cause you the most severe implications if you cannot repay them.<\/span><\/p>\n

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What Are Some Examples Of Priority Debts?<\/strong><\/h2>\n

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Priority debts include:<\/span><\/p>\n