CHICAGO, Nov. 29, 2012 /PRNewswire/ -- As part of BMO Harris Bank's ongoing commitment to financial literacy and Helping Make Money Make Sense, BMO Harris is providing weekly financial tips. This week's tip provides recommendations on how to prioritize your debt.
Is all debt created equal? At BMO Harris Bank, we don't think so. In order to pay down debt faster while paying the least amount of interest, you'll need to prioritize some debt over others.
Although you'll ultimately want to pay off all of your debts, being strategic about which ones you pay off first can save a significant amount of money, potentially hundreds or thousands of dollars.
Here's how we recommend you prioritize paying down debt:
- Credit Card Debt – Credit cards are a convenient form of payment, but chances are this is your most expensive debt, which is why it's so important that you pay it off as quickly as possible. If you carry a balance on more than one credit card, first pay off the one that charges the highest interest rate.
- Mortgage Loan – If you own a home, this is likely the largest debt you carry; however, it's usually at a lower interest rate. Paying off your mortgage sooner rather than later can also save you thousands in interest. Paying extra each month, making an additional payment every few months, or splitting your monthly mortgage into bi-monthly payments are all ways you can pay down your loan faster.
- Auto Loan – Similar to a mortgage loan, auto loans typically charge lower interest rates. And, like mortgage loans, you can potentially save a significant amount in interest by paying off the loan faster.
- Student Loans – Although it depends on what type of student loans you have, interest rates are generally low and there are several types of repayment options. It's important to pay these loans on time each month to help build your credit.