Pay Off Your Debt

Confused about which of your debts to tackle first? Set your priorities based on the interest rate and taxes.

Pay off your credit cards and car loan in order of highest to lowest interest. Paying off a card with an 18 percent interest rate is like earning an 18 percent guaranteed return on your investments. Ask your credit-card issuers for a lower rate, which may work if you have a good credit record and can help you pay off the debt faster. Once you knock down the debt, build up at least three months’ worth of expenses in an emergency fund.

Next, tackle your student loans. You may be able to deduct up to $2,500 per year in student-loan interest. Pay the highest-rate student loans first.

Then consider your mortgage. If you have a low rate on a fixed mortgage, you don’t need to be in a rush to pay it off. You may be better off by investing your money rather than making extra mortgage payments.