5 Debts You Should Pay Off Now – or Later

From mortgages to credit cards, all debt is not created equal.

Successfully paying off debts largely depends on prioritizing your payments and managing your cash flow.

You often hear that there's good debt and bad debt. That's probably because we'd all be depressed if financial experts went around referring to bad debt and worse debt.

After all, it’s challenging to live without owing somebody something. If you want to buy a house with cash, by the time you save up enough, it may be time to head to the retirement home. If you're saving up to buy a car free and clear, you may have to spend a lot of years riding the bus. Most people get through life by borrowing money.

So, sure, there's good debt (the kind you probably can't avoid carrying) and there's bad debt (the kind you should try to get rid of sooner rather than later). One key to determining which debts to pay off now versus later is the interest rate: The lower it is, the longer you can carry the debt without it becoming a burden. Here are some guidelines to help you prioritize your debts.

Mortgage: Pay off later.

The reasoning. If you have a large mortgage, and you win the lottery or come into an inheritance that allows you to pay your house off easily, doing it now is probably not a bad idea. As Jesse Walton, Jr., a vice president at the Walton Group at Morgan Stanley, says, "Paying off debt early is almost always a positive thing." That includes mortgages.

But if you make it your main goal to pay off your mortgage, Walton says you might end up sacrificing other goals like saving for retirement or your kids' college education. "In most households, there is more than one financial goal being targeted. Being debt-free is simply one of them," Walton says.

Revolving credit card debt: Pay off now.

The reasoning. With the steep interest rates on credit cards (the national average is 13 percent for fixed-rate credit cards and 15.7 percent for variable-rate credit cards), this one’s a no-brainer. "Plain and simple, revolving credit card debt is bad debt," says Kent Kramer, chief investment officer and lead advisor at Foster Group, a financial planning and investment advisory firm headquartered in Des Moines, Iowa.

Not only is paying all of that interest expensive, he adds, "it's a result of a lifestyle people can't yet afford … People say they can catch up on their income, but what happens is that they establish a pattern of increasing their [expenses for their] lifestyle, making it impossible to catch up."

Walton agrees. "There is no downside to paying off credit card debt," he says.

Student loans: Pay off later.

The reasoning. Let's just stress that if you have a choice between buying a sports car or retiring that student loan debt, you know what the smart decision is – and, no, it doesn't involve turning up Sammy Hagar's "I Can't Drive 55."

But in most cases, you'll be just fine if you make the monthly student loan payment and don't stress over paying it off any faster. "Student loans tend to have a low interest rate and an extended payment period," Kramer says. "They are also typically unsecured loans that are not tied to collateral such as property, meaning your creditor will not likely repossess your personal assets, such as your home, if you are forced to delay repayment."

That’s another argument for not sinking all your extra funds into student loans. Falling behind on student loan payments can lead to some dire scenarios, such as having your wages garnished. But even that's still arguably better than having your house foreclosed or car repossessed. In most cases, if you have an extra thousand dollars, you're better off using it to pay down your revolving credit card debt than putting it toward student loans.