880 Walkers Line, Burlington, ON, L7N 2G2
My Garage

What debt do you pay off first to make room for a car loan?

What debt do you pay off first to make room for a car loan?

Dealing with debt is certainly an unpleasant experience. However, loans are necessary for some instances and inevitable in certain situations, especially when buying a car.

Therefore, getting a loan in situations like this becomes imperative. However, it is not uncommon to be with multiple debts.

When it happens, what debt do you pay off first? Prioritizing your debt is an integral part of loan management. It helps manage your loan effectively and helps you repay the loan quickly.

Tips to know the right loan to repay first

Pay off the loan with the highest interest: One of the most logical ways to prioritize loan payment is to attend to the loan with the highest interest rate first.

It is a no-brainer that debts with the highest interest rate cost you more money. Every time you leave a payment loan unattended, the interest rate accrues for the overall loan. This way, you can save on your overall interest rate and slowly get out of debt.

This method is also referred to as the avalanche debt repayment method, which allows you to get out of the loan in no time.

Pay off the lowest balance: The fact is that you need discipline and motivation to get out of debt. You would get out of it by doing the bare minimum.

Therefore, you must be consistent with payment and stick to the plan. If you are not motivated, paying off your smallest loans is an excellent way to be motivated.

This method of loan repayment priority is known as the snowball debt repayment method, where you pay off the smallest debts one after the other.

Prioritize your largest balance: Paying off your largest balance seems to be a Herculean task. However, it is a strategy that has worked for many. In some cases, paying off your largest loan is one of the best ways to prioritize your loans. Here are some of such instances:

  • The largest loan has a high annual interest rate.
  • If the loan hurts your credit score because it makes up to 30% of your credit limit.
  • If the loan is 0% promotional period which must be paid off before the period ends.
  • Paying off a joint part of the loan for a divorce degree to close the account.

Pay off all your debt with consolidation: Consolidation is an excellent way for you to pay off your debts fast. Suppose your debt has existed for more than five years, with a high-interest rate, making it impossible for you to repay.

In that case, you might have to consolidate your debt. Consolidation is the process of getting a new financing to repay your loan.

This is the process of getting a new financing to repay your loan. You might need to consider refinancing if:

Your debt is a credit card debt. You can consolidate by using a balance transfer credit card.

If you have various debts you need to repay and a loan of more than $5000, you must seek a loan consolidation.

Once the consolidation on all your debt is done, you are only left with the debt on the balance transfer card. The consolidated debt has a significantly lowered interest rate, which helps you get better and pay off your debt faster.

If you need help or advice on anything to do with auto loans in St. Catharines, contact Car Nation Canada today, we can help!

Categories: News

Tags: ,