Is it better to pay off revolving debt at a low rate or installment debt at a higher rate?
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Let's say you have a student loan at 8 percent and credit card debt at a fixed 3.99 percent. Conventional Wisdom says pay off the higher rate debt first. But, I have read that paying off credit card debt faster improves your credit score, which can save you thousands on a mortgage. So is it better to pay off the lower rate credit card debt and improve the credit score, or the higher rate debt and save the immediate money on interest.
Is it better to pay off revolving debt at a low rate or installment debt at a higher rate?I'd say if you were buried, then ya, pay off a smaller one first just to get momentum going. However, your openess to approaching this situation and manner about doing so indicates that you might not need that added "ego" boost.
That said, most people would say (and as you say, conventional wisdom too), pay off your highest rate debt first and work your way down. At 3%, you could put that money in cds, etc, and earn 5%. Keep the 3% debt unless you have excess cash. Pay the 8% stuff off first. Once complete, that'll allow you to get more debt at favorable rates as well.
Check out Suze Orman's site for a few tidbits,
http://www.suzeorman.com/igsbase/igstemp...
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Hope that helps!
Is it better to pay off revolving debt at a low rate or installment debt at a higher rate?I have heard pay off the smallest amount first no matter what the rates are.
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