Too many Americans never achieve financial freedom because of a mountain of debt. The average household owes more than $203,000 on mortgages, student loans and credit card debt.
Knowing how to rank your debt can open up new opportunities and improve your credit score.
Why You Should Know How to Rank Your Debt
Here are some steps: 1. To get started, make a budget & rank your debts according to interest rate. 2. Then, focus on paying off the most expensive ones first.
Rank your Debt with the Avalanche or Snowball Method
The debt avalanche involves ranking your debt by interest rate with the highest-rate debt on top to be paid off first.
Rank your Debt on Credit Score Factors
You can improve your credit score by ranking your debt on the final credit factor, types of credit which accounts for 10% of your score.
Rank your Debt on Good Debt, Bad Debt
I like to rank debt from good debt to bad debt, focusing extra payments on the bad debt to close out those accounts quickly.
Example of a good debt and bad debt ranking:
1. Payday loans (Worst!) 2. Credit cards 3. Car loans 4. Business loans 5. Mortgage Debt 6. Student loan