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3 Things To Consider When Repaying Debt

Things to consider when repaying debt If you’re in debt, you are not alone. According to, each household with a credit card carries a debt of over $15,000 on average. While tackling your debt can seem like a daunting task, it does not have to be.

 1. Start with your highest interest rates: The first step in the war against your debt is to focus on paying off debt with the highest interest rate. This debt typically comes from credit cards but auto and private student loans may also carry high interest rates as well. If you are not sure which of your debts has the highest interest rate, make sure to read through your loan agreements or call the lender directly. The ideal situation to work toward would be paying off your credit card in full each month in order not to accrue such high interest.

Remember that your lowest payment may not have the lowest interest rate. Even if your minimum payment is small, a large portion of it could be interest. While it seems proactive to rid yourself of small debts quickly, not taking your interest rate into account when paying back debt could mean you pay more in the end.


2. Pay off your principal first: When making a loan prepayment (paying more than your minimum due), be sure to apply it to your principal only. By doing this, you will reduce the total amount owed therefore decreasing the amount of interest that will accrue. Depending on how you pay, write “pay to principle” on any checks you submit or if you prefer online banking, be sure to choose how your payment will be designated.


3. Repay student loans last: Student loans come last on your priority list of repaying debt. Federal student loans offer a much more flexible repayment system: cancellations, deferments and forbearance. These federal loans do not typically carry the highest interest rates. The interest rates on student debt can become even lower if you consolidate them. Another “perk” is that you can generally deduct paid student loan interest as long as your AGI (Adjusted gross income) falls within the current IRS limits.


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