If you’re managing multiple debts, it’s crucial to face them head-on and work towards becoming debt-free. But where should you begin? This article explores whether you should focus on paying off a mortgage, credit card, or overdraft first, and what key factors to consider. You’re not alone if you owe money to various creditors – many people have debt, whether from credit cards, store cards, mortgages, loans, or overdrafts.

Some debts can be settled quickly, while others take years. So, how do you decide which to tackle first?

Prioritizing Your Debts

The order in which you pay off debts depends on whether they are secured or unsecured. Secured debts, such as a mortgage, carry the risk of losing your home if repayments are missed, so it’s essential to understand the terms of any secured debt.

Certain debts, like council tax arrears, can even result in imprisonment, so they should also be prioritized.

Should Your Mortgage Be Your First Focus?

Your mortgage should be a top priority since failure to repay it could put your home at risk. However, missing repayments on a store card, though serious, is less likely to result in losing your home. Therefore, any debts secured against your property (like a mortgage or home loan) should be prioritized over unsecured debts.

That said, you shouldn’t neglect other debts while focusing solely on your mortgage. It’s important to keep up with repayments on all debts, but if you’re struggling, prioritize clearing high-priority debts first and seek help with managing the rest.

What’s Next After High-Priority Debts?

It’s often more cost-effective to target the most expensive debt first, as these debts accrue the most interest. By paying them off, you’ll free up more money to tackle other, less costly debts.

Make a list of all your outstanding debts—credit cards, loans, overdrafts, etc. Find out the interest rates (APR) on each one, either from your statements or by contacting your lender. Once you know which debt has the highest interest rate, direct as much spare cash as possible towards paying it down, making overpayments if allowed without penalties.

While continuing minimum payments on all your debts, focus any extra funds on clearing the highest-interest one first. Once it’s paid off, move on to the next most expensive debt, and repeat the process until you’re debt-free.

Should You Pay Off Your Student Loan Early?

In most cases, it’s not advisable to overpay on student loans. The repayment amount is based on your income rather than the loan balance, and missed payments don’t affect your credit score. Plus, after a set period, the loan balance is wiped, regardless of how much is left.

The only time it makes sense to pay extra on a student loan is if you’re earning enough to pay it off before it’s wiped clean.

Free Debt Help

If you need assistance distinguishing between priority and non-priority debts or need help contacting creditors, reach out to your local Citizens Advice Bureau for free, confidential financial advice.