After Paying Off Your Credit-Card Debt, What's Next?
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Here's your money briefing for Friday, May 21st. I'm J.R. Whelan for The Wall Street Journal. Being stuck at home during the pandemic with not a lot of places to spend money allowed many people to give their personal finances a boost. In 2020, Americans paid off credit card debt to the tune of $83 billion and crossed out another $49 billion in the first quarter of this year. So what debt should be next on the list?
A lot of the different financial advisors I spoke with said the rules are a little bit more loose and fluid these days.
We'll have more on the new rules from our personal finance reporter, Amber Burton, after the break.
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Among all the different kinds of debt a person can have, credit card balances typically carry the highest interest rates. So wiping those off can be a big and important step. But what should you pay down next? Personal finance reporter Amber Burton ran some numbers and she checked in with some financial professionals. Amber, thanks for taking the time to chat.
Thanks for having me.
So Amber, a lot of people were hurting financially during the pandemic. How were they able to pay down so much credit card debt?
The ability to pay down so much credit card debt during this time really stemmed from just the amount of federal aid and help that came through. So, you know, you had the stimulus checks coming in and you also had different initiatives like the mortgage forbearance option and also the student loan forbearance option for federal student loans.
How did Americans pay down $83 billion in credit-card debt during the pandemic?
And that really gave people more room to focus on paying down that high interest credit card debt.
So once they pay that off and they look to wipe out more debt, is the rule about paying off the higher interest rate debt still in play?
Not necessarily. A lot of the different financial advisors I spoke with said the rules are a little bit more loose and fluid these days. Traditionally, the next priority would have been student loans. But now, since federal student loans at least are in forbearance, you have the option to move on to other types of credit. So instead of necessarily moving to your student loan debt next, you could start focusing on those personal loans. One financial advisor I spoke with said, really taking a look at your debt kind of in a holistic way is the best way to figure that out. So for example, when you're looking at, maybe I should move on to my auto loans next. It's looking at, you know, how much debt is left on that auto loan?
Has that debt surpassed the actual price of the car? If so, you know, it might be better for you to start considering right away, should I just go ahead and sell the car and cut my losses here? Or should I just double down and go ahead and pay this one right away? So taking it all into consideration, laying it out in front of you will help you figure out, you know, the immediacy in which you should be paying it all off.
Now, paying off your credit card debt can go a long way in improving your personal finances, like boosting your credit score.
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