Types Of Debts You Should Prioritise Repaying First

Obtaining a loan or any other type of debt will mean that you have an obligation to fulfill. You have an obligation to repay it within the time period stipulated. Adding to the dilemma is the fact that you may have different types of debt at the moment. If you are confused as to which you should pay first, here is how you should prioritise them:

Distinguishing good debt from bad debt

There are good debts and bad debts in loans. Good debts are those with low interest rates thus giving you more time to repay them. Bad debts, on the other hand, are a type of loan which commonly has very high interest rates like credit cards. These ones have to be repaid immediately to avoid any other surcharges.

Credit card debt

Credit card charges usually command the highest rates amongst any kind of debt. In fact, if you have done your research before availing one, you may have noticed that rates range anywhere between 15% and 30%. This is a very high interest rate thus you have to repay your credit card as soon as possible. For those of you who own numerous credit cards, pay the one with the highest interest rates first. Even if it means getting debt consolidation mortgages in Montreal so that you can repay your overdue credit card charges, it will be in your best interest to do so.

Installment loans with high interest

Installment loans with high interest rates include auto loans and all other types of loans with interest rates that are higher than 7%. Also classified as bad debts, these ones come next when repaying your debts. The more often you pay this type of loan, the better your financial condition will be in the future.

Home Equity Loans or Home Equity Lines of Credit (HELOC)

This is one type of good debt that you should prioritise to repay. They have low interest rates so to speak but they still can have higher rates when compared to student loans or mortgages. If you have an existing HELOC with higher rates, you should consider repaying them too. You need to prioritise this type of loan because you want to avoid the chances of not being able to repay them in case you are planning to resell your home in the future and the property’s value has gone down in the market.

Student loans

These types of debts will allow you to pursue your education and the good news is you are charged a relatively low interest rate when availing one. You do not have to accelerate your repayment for student loans if you are paying an interest that is below 7% though. Paying the loan within the stipulated terms in the contract will be enough to guarantee you will not be falling in the debt trap.


The great thing about mortgages is that they come in very low interest rates thus allowing you to use up any cash you have at the moment for any emergency purpose provided you have paid for the other debts that have been explained above. Whilst it is the last thing you should repay in the world of debts, you have to make sure you have invested your money wisely and that you will not default on your monthly payments on your mortgage.

The rule of thumb in repaying debts is to make sure that you pay the bad debts as quickly as possible, that is, even before they are due. That way, you can be free from stress and not worry about getting into a financial situation whereby you are stuck with a horde of unpaid debts. When it comes to good debts, it will be good enough to pay them within the normal terms of the loans.

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