With an emergency fund in place and an investment strategy up and running, placing any extra money toward debts is also a smart choice. But how does one decide which debts to pay down first?
One approach is to start with the smallest debts first, thus eliminating some of the debt burden and interest payments in a timely manner. It also makes sense to pay off high-interest debts, like private student loans and credit card debt.
Federal student loans and mortgages might be lower priorities, because their rates are often lower and their terms are longer. Vehicle loans might fall somewhere in the middle. Tax considerations might also come into play.
Again, the decision of paying off debt varies from person to person. As you divide and conquer debt, don't forget to consider the emotional side of your strategy. If paying off a certain debt will help you feel more secure, you might want to go with your gut feeling.
You'll enjoy a growing sense of financial freedom as you stay on course and get your debt under control. As debt shrinks over time, you may have more funds available for enjoying the present and focusing on the future.
Remember, the closer you get to retirement, the more important it will be to reduce debt expenditures. You may not be able to control how much income you will have coming in, but you can control how many payments you may have going out.
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