Modern Americans often juggle various debts, from student loans and mortgages to large credit card balances. Attempting to pay off all these can be challenging, even for the most financially savvy of people. Experts advise tackling credit card debt first as, left unchecked, this can be the most expensive.
Stephanie Genkin, a certified financial planner, revealed how a client recently arrived with $250,000 in student loans and a further $25,000 credit card balance. Although the client was focused on the educational expenses, Genkin was more concerned about the credit cards, because it indicated that the client couldn't afford her lifestyle. Another concern was that the interest on her credit card debt was four times higher than the rate on her student debt. Genkin pointed out that many people simply look at their debt amounts, rather than understanding how the interest rates contributed to their debt in the long term.
On average, credit card interest rates are about 16 percent, which is far higher than that of many other debts and means you could pay more in interest over time. "It should always be the number one goal to tackle," says financial advisor Matthew Crisafulli. "The interest compounds in the wrong direction…and it gets out of hand quickly."
If you have several credit cards with various rates, it's wise to focus on paying down the balance that is earning the highest interest, but paying off your smaller balances completely can also feel empowering. Calculate how much your total interest expenses will be and decide which strategy works for you as an individual. If you have debts over $10,000, tackle the repayments on these before trying to save for something such as a home.