In What Order Should You Pay Back Loans?: Or, When Do I Pay Back My Car?

If you’re like most Americans, you have quite a few bills to pay. A car loan, credit cards, maybe even a mortgage. If you have extra cash, when you should pay it back?

Credit Cards First

If you have a lot of loans, the first rule of thumb is to pay back the higher interest loan first. This means that first of all, you should never get a payday loan or cash advance on your paycheck. These loans can lead to exorbitant rates of interest, and should always be repaid first.

However, for many people, the highest-interest debt that they owe is a credit card debt. This should be paid back before you put any extra money on your car payments, student debt, or mortgage. Although many people carry a balance on their credit cards, the best thing to do is to avoid carrying a balance, or to pay as much as you can each month. This will reduce the amount of money that you are spending each month on just giving the credit card companies money.

Car Loans, Personal Loans, Renovation Loans, Student Loans

Once you have paid off your credit card debt, what do you with extra money now? Again, start with your highest interest debt. This means comparing the financing rate on your car loan with the interest rates on your other loans.


If you have a lot of loans, you might be able to consolidate them, especially if you are a student. Visit The Guide to Student Loans for information on how to consolidate your loans. If you consolidate them you put them all at one interest rate and one monthly payment. Remember: lowering your monthly payment isn’t always the best choice. You want to have the lowest interest rate possible to save you money in the long term. If you choose to consolidate, the answer becomes simple, you put the money on the consolidated loan that you have.


Mortgages are one of the least-taxed loans that there are. This means that there is no rush to pay off your entire mortgage instantly. However, whenever possible, do put extra money on your mortgage payment. Even if you only put an extra $500 in the first year, that will save you more than $500 in interest. Make a goal to overpay your mortgage, but only slightly. Your other, higher-interest loans are more important to pay off first.


Although getting all of your loans paid off might seem like a good thing, you need to remember to save for the future too. Make monthly payments into a retirement plan (perhaps a 401k), and pay yourself first. Once you have paid your savings, and then paid your monthly payments on debts, you will know how much money you have left to spend.

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