Which debts should I repay first?

The amount of consumer debts owed by the average United States household is staggering. In fact, it’s estimated that the average credit card debt is currently $15,270 and the average student loan debt is $32,258. This means American consumers owe an estimated$856.9 billion in credit card debt and a little over $1 trillion in student loan debts.

So if you have a little extra money and you are wondering what debts to pay off first you might consider several options. For instance, is it best to pay off the debts with the highest interest rate because it is the most expensive to service each month or are there other issues to consider such as what debt payments may improve your credit score?

Should I pay off my installment loan debts?


The first option is to repay an installment loan. Installment loan debts generally are loans for secured assets such as a car or house. In most cases the installment loan is secured by an asset, although there are certain installment loans which may not be such as a student loan or an unsecured personal loan. In most cases the installment loan is protected or collateralized with an asset which can be repossessed to recoup the cost of the loan.

If you have extra money you can repay your installment loans, but most experts suggest that paying credit card debt can help increase your FICO score more because “it reduces the total amount a consumer owes as well as the percentage of credit used, thereby increasing the amount of credit available to that consumer.”

Credit Card debt repayment


Another option for reducing your debt load is to repay your credit card debts, which are considered a revolving credit account. This type of debt is generally not fixed but changes each month based on your charges and revolving line of credit.

Credit card debt is unsecured debt, which means it is not secured by any type of collateral. For this reason the debt is considered a greater future risk to the lender. Lenders also realize that because you will not lose an asset if you fail to make a credit card payment, the repayments of the debt may be considered a lower priority if you have financial trouble.

Additionally, credit card debt can be extremely damaging to your credit score if you do not make credit card payments. The good news, however, is that if you have extra money, reducing your credit card debt can substantially improve your credit score.

What credit cards do I pay first?


Whether you choose to pay off the highest balance cards, the ones with the highest interest rates or the cards with the lowest balances so you can feel the satisfaction of reducing the number of credit cards is really a personal preference. There are pros and cons for each payment structure. Many experts suggest repaying the smallest balances first allows you to experience small victories, propelling you towards greater success. Others who do not need the satisfaction of small successes can focus on one large balance with the highest interest rate and save more money.

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Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.