Stimulus money, mortgage forbearance and the pause in federal student loans have helped Americans pay down high-interest credit-card debt. Now, some are wondering what is the smartest debt to pay off next.
Americans paid off $82.9 billion of credit-card debt in 2020, according to an analysis of TransUnion and Federal Reserve data by WalletHub.com, a consumer-finance website. In the first quarter of 2021, credit-card balances dropped by $49 billion, the second-largest quarterly decline since 1999, according to the Federal Reserve Bank of New York. Meanwhile, more than 20 million people still have student loans in forbearance.
Financial advisers traditionally encouraged borrowers to pay down debts starting with the ones carrying the highest interest, which is usually credit cards. With relief programs still in place, some say the old advice should be thrown out the window.
The new order of operations is all about evaluating how secure your income is and what else you have going on, said Michele Cagan, author of “Debt 101.”
Here are three ways to think about erasing any additional debt you might have: