5 Debts to Pay First! - Thrifty & Crafty (2024)

When you start to analyze your debt and want to take the first step to financial freedom. There is one question that everyone always asks themselves, what debts should I pay off first?

I asked myself the same thing, my husband and I talked numerous times on what we should pay off first and changed our minds constantly. It is okay to be unsure as long as you are taking the first steps in the right direction, there is really no wrong answer.

This article lists 5 debts to pay off first for financial freedom. Things that you will always want to consider when deciding which debts to target, will be interest rates, monthly payments and how not having those monthly payments will benefit you in the long run.

Disclaimer: I am not a professional financial advisor, these are tips that I believe in my own opinion will help you reach financial freedom. However you should still assess your own financial situation and do what works best for you and your family.

1. Credit cards with high interest rates

Credit cards with high interest rates are the first ones on the list because they are a big money sucking black hole. Especially if you are only paying the minimum amount.

Start here first and eliminate these as fast as you can by making an extra payment a month or more if possible.

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2. Car

Cars are probably the worst investment you can make. I am sure you have heard that the moment the tires hit the road the value of the car drops dramatically. This is absolutely true, in the first year your car will usually lose close to 20% of its value and it doesn’t stop there it continues to lose value each year after that.

The best thing to do is to pay your car off as fast as possible. This will free up your monthly car payment, which can usually range from $300-$500, to use on other debt.

And fight the urge to jump into another car purchase, I would recommend taking care of the maintenance on your car and ride it until the wheels fall off 😅. But seriously what can you do with $500 extra a month?

3. Student Loans

Oh student loans how I hate thee. If you have gotten student loans then you know how EASY the process is … AND… how easy it is to defer 😒. Usually student loans will not have a high interest rate but because it is so easy to get approved for them you can rack up thousands and thousands in student loan debt.

I started paying my student loans a couple of years after I graduated from school. The process to defer was easy and for me it was easy to put this debt on the back burner and not think about it. BIG MISTAKE. Start paying your student loans as soon as you can even while your in school, better yet avoid them at all costs, if possible. I would recommend having the student loan payments on auto pay, some companies will give you an incentive if you opt in for autopay (i.e. reduce your interest rate).

4. Mortgage

I only recently purchased my house 5 years ago, I say recently because I still have 25 years more to go 🤧. And even though my husband and I are concentrating on other debts that are more important at the moment. I felt it was important to mention paying off your mortgage because this is usually the highest payment a month most families have.Eventually once all our bad debt is gone, we plan on heavily investing in our mortgage to cut down the life of the contract even more.

Steps you can take to pay off your mortgage sooner will be to enroll in a biweekly program this way you will be making one extra payment a year. This means that you would be paying your mortgage off in less than 30 years! You can also make extra payments a month to cut down the life of your loan. I would not recommend refinancing unless your interest rate is high and you know that you have the opportunity to lower it.

5. Retirement

Okay this one is not a debt but you do need to pay into it as much as you can and as early as you can! This is how you build a good and secure financial future for yourself. I don’t know about you but I don’t plan on working for the rest of my life. I want to be able to retire on a beautiful beach somewhere drinking margaritas and watching the sunset.

The earlier you start setting money aside in any type of retirement account the better. It will start earning compound interest, this is the good interest that works in your benefit! So take advantage of this and start investing in your future ASAP.

With all this said, the time frame that you decide to pay these off is up to you and your budget. You can tackle most of these aggressively and pay them off sooner by being more frugal in other areas of your life. Check out my article on 10 Best Tips for Living a Frugally Fantastic Life!if you are not sure where to start.

I hope you found this information helpful. Make sure to share with your family and friends that might benefit from this information! Let me know some other bad debt that you think should be on this list in the comments below.

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