It’s easy to lump all debts together into one composite thing and proclaim them to be ‘bad’ for personal finance. While owing a debt is certainly less appealing than living life totally debt-free, almost no one can truly claim to be completely unencumbered by a financial repayment obligation of some kind. Moreover, not all debts are created equal. Many millions of young people have made their way through college with the help of student loan financing, a credit product that comes with a very low interest rate in comparison to most other lending products available. For the 2023-24 school year, undergraduate rates for federal student loans are 5.50%. That’s a far cry from the 24.46% average rate for credit cards, as of the end of October 2023, or even mortgage rates for that matter, sitting at an average of 7.69% in November 2023.
Borrowers can focus their efforts at repayment on whatever lending product they desire, as long every monthly payment is met and accounts stay in good standing. If you’re juggling a mortgage and two credit cards, paying off the highest-interest loan first will save you the most in interest additions. While everyone dreams of owning their home free and clear one day, prioritizing overpayments on the mortgage rather than eliminating your revolving credit card balances is the wrong approach to debt management.