Title: Tackling Debt: Credit Cards & Loans
Dealing with debt can feel overwhelming, whether it’s from credit cards, personal loans or payday loans. But being debt-free not only gives you financial peace of mind, but also improves your credit score. Knowing which debt to clear first makes this journey easier.
First, let us understand two common types of loans – Installment and Payday loans.
Installment loans are those you pay back over time through scheduled payments. They could be for anything – cars, houses, personal expenses, or even payday advances. Interest rates and repayment timelines vary in each case.
Payday loans, which are a type of installment loan, are usually small and unsecured – meaning you don’t need to have something of value to get one. They’re often obtained from online platforms like Personal Money Network.
Another kind is a mortgage loan, which you take out to buy property and pay back over time. If you miss payments, you could lose your property as it serves as collateral.
Then, there are auto loans for buying vehicles. Like mortgage loans, they are tied to their associated asset, and failing to repay can lead to your vehicle being repossessed.
Personal loans are a bit different. More often than not, they aren’t tied to any collateral, and their repayment periods range from 2 to 7 years.
Now, credit cards are a different ball game entirely. They are a form of ‘revolving debt’. You keep borrowing and repaying as you make purchases. If you’ve maxed out your credit card, it should be your top priority to pay it off, as the interest rates are usually higher than with other loans, and a high balance negatively impacts your credit score. Paying off your card can improve your credit standing and save you a lot of money in interest.
Deciding where to start is elemental. Often, it’s smart to pay off your credit card first, but in certain situations, it might be better to focus on installment loans. If your credit card balance is less than 30 percent of your overall credit limit, and your installment debt is higher, you might want to tackle the latter first.
Strategy lies in focusing on the balance and interest rates of different debts. Make a list of all your debts, ranking them from smallest to largest, and see which ones can be cleared off easier. Once the smaller debts are gone, you can shift focus to the bigger ones. Also, compare interest rates of different debts, as this can significantly affect how much you’ll be paying over time.
In a nutshell, starting on your debt-clearing journey can be challenging. More often than not, paying off your credit card first is the way to go. However, there may be situations where clearing an installment loan takes precedence. Regardless, starting somewhere puts you one step closer to being debt-free. Spread the word, and empower others to break free from debt.