Paying off your debt will make it much easier to reach your savings goals. Just think—if you no longer have monthly interest payments, that’s money you can start saving. This advice goes for any high-interest debt, such as credit cards or car payments, where interest can’t be deducted from your income before taxes.
|Monthly payment||Card paid off in||Interest you pay|
|You save $1,889|
Here’s what you can save by increasing your monthly payment on a credit card with a $6,000 balance charging 13% interest (if you don’t incur any more charges). In two years, you’re all paid off, and the money that’s been going to pay your debt can start going to your savings.2
How much debt is too much?
An industry rule of thumb suggests that:
Source: Good Debt vs. Bad Debt.
Should student loans be a payoff priority, too?
While it’s great to be rid of student loans, they’re generally low-interest and don’t appear as a negative mark on your credit rating as long as you never miss a payment. So you don’t need to rush to pay them off.
In financial terms, student loans are often considered “good debt,” similar to a mortgage (and unlike credit cards). Just make regular, on-time payments while you get the rest of your financial house in order. However, timing is crucial: A late payment will be a ding on your credit rating.
How do I create a credit card payoff plan?