Deciding Which Debts to Pay First

One way to raise your credit score is to pay off debts. Once you have created a budget and set aside money each month to pay extra towards your debt, it can be daunting trying to decide which bill to pay off first. One way to decide is to pay off the debt with the highest interest rate. For example, paying off a credit card with a 15% interest before paying off a car loan with a 5% interest rate. By doing this, you will pay less in interest for the money borrowed.

Or you can decide to pay off your smallest debt first. If you owe $9,000 on your high interest credit card and $5,000 on your lower interest car loan, you may want to pay off the car loan first. That way, when the car loan is paid off, you can make larger credit card payments by applying the money set aside for the car loan to the credit card payment. Additionally, it may help you stay motivated when you are able to pay off a debt and see that sticking to your budget is helping you become debt free.

If something unexpected happens and you are not able to pay extra one month, do not skip a payment on another bill or make a late payment to make up the difference. Be sure to always make at least the minimum payment on time for all your bills. Missing payments or making late payments will hurt your credit score and you will end up paying more in fees.