Finance Blog
How to Pay Off Debt Faster and Prioritize Your Debt
How to Pay Off Debt Faster and Prioritize Your Debt
Did you join David Bach last month in his Facebook Live Chat?
David shared some great advice about how to become “Debt Free for Life,” how to pay off debt faster, and how to prioritize your debt.
Don’t miss the next Live Chat, this Thursday, with TaxMama Eva Rosenberg. She can answer all your questions about filing your 2010 taxes. Sign up now on the Equifax Facebook Fan Page.
Here are some questions fans asked David and how he answered them:
Shelby asked:
Could you tell me if it is better to pay additional monthly payments toward your mortgage principal or pay any additional payments in one lump sum? Currently I pay an additional monthly amount and then another lump payment with my Dec. payment. Is it better to divide this lump sum into 12 months and pay the additional monthly instead of yearly? I would really appreciate your response.
David answered:
Shelby, if you pay it monthly, you will reduce the principal faster. But truthfully I don’t think it matters that much. What matters is that you simply make extra payments on your mortgage. I personally make extra payments each month, and then based on my income I make extra payments a few times a year. The most important thing when you prepay a mortgage is making sure that the money is credited by the bank against the principal. It’s amazing but true that banks will often take the extra payments and hold on to them in an account and not pay you interest or pay down the mortgage until you ask! It’s happened to me, and to my readers. So watch extra payments like a hawk.
Regina asked:
Do I pay my student loan off before I start paying off $35,000.00 in credit card bills?
David answered:
Regina, I would definitely be paying off my credit card debt before my student loans. The interest rate is more than likely much higher on the credit cards than the student loans. The one exception to this rule is if you plan to go bankrupt. Credit cards can be walked away from in bankruptcy, and student loans can’t.
Angie asked:
Is it better to pay off your house or save the money? I am leaning toward paying off the house. It is the last thing I owe money on. I could pay it off in about 4 years . . . $87,000 . . . What do you think?
David answered:
Angie, I would have at least six months of emergency expenses set aside, and then I would pay off your mortgage. You’ll love being debt-free. The one thing is, however, I want you to also max out your retirement account at work if you have one, or at least max out a deductible IRA each year. So max out those retirement accounts and then make the extra payments on the mortgage.
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I have balances on three credit cards that are all being paid off with debt-wise over the next 12 months:
1.) The first is close to its limit, but, I'm paying 0% interest for another 11 months.
2.) On the second I'm paying 15% interest and it's current balance is about half it's limit.
3.) The third was closed at my request and has about 1/3rd of it's original available credit remaining that I continue to make payments on every month. Unfortunately, it carries the highest interest at 20%.
If my goal is to raise my credit score as much as possible in the next three months, which card should I target? As I've said, cards #2 & #3 both have balances at 50% or less than their respective limits. Card #1 is enjoying 0% interest for 11 more months. It would seem clear that I should target card #3…But I've heard that having such a high utilization of credit on ANY ONE CARD (card #1) can be deleterious. Is this true? Or does the total utilization of all revolving credit remain the overriding factor in that portion of the score? Thank you!