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Credit and Debt

Credit and Debt

September 08, 2020

I’m going to circle back around to credit because it is one of the things I get asked about most often. People want to get out of credit card debt, pay off student loans, houses or cars. But do you know in what order you should do this? Do you know what would save you the most money?

Generally speaking, credit cards and personal loans have higher interest rates and do nothing for you in terms of tax savings. The higher the interest rate, the more you pay to the company and if you hold that debt for a long period of time, you could be talking about thousands of dollars. Every situation is different but generally, I recommend that people pay off higher interest rates first to lower the cost of the debt. Come up with a plan for these high interest rates and be conscious about sticking to it.

Mortgage pay offs. Here’s the thing about mortgage interest…it can help your tax situation. This of course depends on your other tax write offs.  With mortgage interest rates being so low this would not be the first place to pay down.

Student loans may also be beneficial to your tax situation. You may be able to write off the interest and they usually have lower rates than credit cards.

 As for auto loans, new cars can depreciate the minute you drive off the lot. Full disclosure, I’m not a car person. Whether to lease or buy has a lot to do with your situation. Do you use it for business? Do you buy a car every 3 years? Unless you use your car for your own business, you generally can’t write it off. Depending on if you have other high interest debt, cars debt tends to have low interest rates.  Again, we like paying off the high interest rate debt first.

The one thing that we haven’t touched on here is personal comfort. Everyone has a debt comfort level. On top of that everyone feels differently about possessions. Homes, cars, clothes etc. Some people feel more comfortable with no debt and others accept it and pay it smartly. When in doubt, talk to a professional or if you prefer the DIY approach, be sure to do your research. Check out sites like and compare rates or . Don’t discount your personal comfort level when looking at your debt situation. You want to be able to sleep at night knowing you have a plan that fits your lifestyle.