15 Of The Best Money Books For Young Adults – Learn How To Live The Life You Want

Are you looking for the best money books for young adults?

best money books for young adults

best money books for young adults

Today, I want to talk about the best money and life books for new high school graduates, college graduates, and other young adults. These would be great for graduation gifts, or just for yourself!

I wasn’t always good with money when I was younger. I bought more clothes than I needed, financed a new car, spent a lot going out to eat, and spent a lot of money on things I didn’t need. It took me several years to realize how my spending habits were affecting the rest of my life.

I think this is fairly common when you’re younger, and there are lots of great financial books for young adults that can help you understand how money works and how to prepare for the future. 

The best money books for young adults explain personal finance topics like saving, investing, making more money, and more. And, reading them when you’re young can help you get on the right track with your money from a young age. 

Rather than spending years playing catch up with your money, you can get started on a great path now. 

I often get questions from young readers who are looking for help with their money, and I also get questions about how to help a young person with their money. These books are a great gift for yourself or someone you know.

For me, I love to give books as gifts, especially personal finance books for high school and college graduation gifts. And the best money books for young adults on this list make for great gifts – I’ve even given some of these books as gifts.

If you want to change your life, then I recommend that you start reading personal finance books. Yes, money is not everything, but improving your financial situation can help you gain control of your life.

Related: 6 Simple Steps That Will Teach You How To Write A Check

There are many different books listed below, so you will be sure to find at least one or two that meet your needs.

The best personal finance books may help you learn how to:

  • Understand basic financial concepts in an easier way
  • Reach financial independence or retire early
  • Take on your own yearlong shopping ban
  • Deal with and pay off debt
  • Better manage the 168 hours a week you have
  • Become more confident
  • Invest for your future
  • Choose your own dreams and adventures
  • Find the best path to pay off your student loans

And more!

Here are 15 of the best money books for young adults.

 

1. Broke Millennial

Broke Millennial was written by Erin Lowry, and is a must-read for young adults. She makes the topic of money entertaining, fun, and relatable for young adults. You won’t be bored with this money book!

Erin gives readers a step-by-step plan to stop being broke, and she discusses many topics, from tricky ones like how to manage student loans, how to discuss money with your partner, and more.

Please click here to check out Broke Millennial.

Another one of the best money books for young adults is Broke Millennial Takes On Investing. Erin recently published this one and it’s a great read, as it covers the topic of investing without making you feel dumb.

 

2. Work Optional: Retire Early the Non-Penny-Pinching Way

Work Optional is another one of my top picks for best money books for young adults, as it was written by one of my favorite writers, Tanja Hester. This personal finance book will show you how to reach financial independence so that you can live the life you want. 

I know retirement feels very far away when you’re younger, but this book explains how early retirement is a possibility if you start saving money now. Yes, retiring before the traditional age of 65 can happen, and it starts with the kind of guidance you’ll get in this book.

Please click here to check out Work Optional: Retire Early the Non-Penny-Pinching Way.

 

3. The Year of Less by Cait Flanders

If you’re looking for one of the best financial books for graduation gifts, check out The Year of Less by Cait Flanders. In this book, Cait writes about her yearlong shopping ban which will inspire you to simplify your own life and address your relationship with material possessions.

Cait talks about how for a full year, she only bought groceries, toiletries, and gas, and how it impacted her life. This is a great read for young adults as it is so easy to get into a spending cycle when you get your first real job and start earning larger paychecks.

Please click here to check out The Year of Less by Cait Flanders.

 

4. Dear Debt

Dear Debt was written by Melanie Lockert and focuses on people’s relationships with debt in a funny and endearing way.

Dear Debt is a must read for anyone who has debt or is taking on debt. Melanie shares her personal experience paying off $80,000 of student loan debt, how it affected her mindset, and more. This is one of the best money books for young adults because it’s a personal story about overcoming debt. There’s also tons of great money advice that will help others overcome the debt that may be holding them back.

Please click here to check out Dear Debt.

 

5. 168 Hours: You Have More Time Than You Think

Do you ever wish that you had more time in your week?

This book, written by Laura Vanderkam, focuses on helping people manage their time better so they can focus on what really matters.

Laura writes about tips and tricks to live a more efficient life. She teaches you how to prioritize things in your life, from how to get enough sleep every night to finding time for hobbies you’ve been wanting to try. You will learn how to use your 168 hours a week to make your life better, as you’ll learn many great life-changing strategies.

Please click here to check out 168 Hours: You Have More Time Than You Think.

 

6. How to Win Friends and Influence People

How to Win Friends and Influence People was written by Dale Carnegie in 1936 and has sold over 15,000,000 copies worldwide. This is one of the most best-selling books ever, and for good reason!

This book will show you how to approach situations differently, become more confident, and get people to like you. This is one of the best money books for young adults that people of all ages will benefit from, because this book is all about living a happier and more successful life at any age.

Please click here to check out How to Win Friends and Influence People.

7. Quit Like A Millionaire

Quit Like A Millionaire was written by Kristy Shen and Bryce Leung, who are well-known people in the FIRE community. And, if you’re not familiar with FIRE, it stands for Financial Independence Retire Early. Everyone approaches FIRE differently, but the point is to stop letting money hold you back from living the life you want.

Kristy retired early at the age of 31 with a million dollars, and has a very inspirational story. In this book, she explains how that was possible and how it can be a reality for you too. This is a great guide on how to save more money, retire early, and live the life that you want.

In this book, you’ll learn a step-by-step guide on how to reach success, whatever that may mean for you. This is a fun and inspirational book that will open you up to new possibilities and opportunities.

Please click here to check out Quit Like A Millionaire.

 

8. Get Money

Get Money is a book by Kristin Wong, and it’s an engaging read that will teach you how to manage your money.

Kristin gives you a step-by-step personal finance guide that will show you what you need to do in order to stop letting money control your life. You will learn how to create a budget, pay off your debt, build a better credit score, negotiate, and how to start investing.

Please click here to check out Get Money.

 

9. Financial Freedom: A Proven Path to All the Money You Will Ever Need

Financial Freedom was written by Grant Sabatier, who decided that he needed to change his life by learning how to make more money.

Here’s a bio I found about Grant to show you how awesome he is!

“In 2010, 24-year old Grant Sabatier woke up to find he had $2.26 in his bank account. Five years later, he had a net worth of over $1.25 million, and CNBC began calling him ‘The Millennial Millionaire.’ By age 30, he had reached financial independence. Along the way he uncovered that most of the accepted wisdom about money, work, and retirement is either incorrect, incomplete, or so old-school it’s obsolete.”

In his book, Grant writes about how to reach financial freedom through steps such as building side hustles, traveling the world for less, building an investment portfolio, and more. 

Please click here to check out Financial Freedom.

 

10. The Simple Path To Wealth

The Simple Path To Wealth was written by JL Collins, and it’s one of the most popular and best money books for young adults that’s available.

Collins writes about many important financial topics in his book, such as how to avoid debt, how to build wealth, what the 4% rule is and how to use it to your advantage, and more.

This is an easy book to read, and it makes complicated personal finance topics much easier to understand. Many people have said that JL Collins is the reason why they were able to retire early, thanks a lot to his website and book.

Please click here to check out The Simple Path To Wealth.

 

11. Student Loan Solution

Student Loan Solution was written by David Carlson, and it’s a great book for anyone who has student loan debt.

Student loans can be extremely difficult to understand, as there is so much different terminology as well as different ways to pay them back (such as loan forgiveness, consolidation, and so on). This book explains a 5-step process that will help you to better understand your student loans, the best ways to pay them off, and more.

Please click here to check out Student Loan Solution.

 

12. The Millionaire Next Door

The Millionaire Next Door is another classic personal finance book, and it was written by Thomas J. Stanley.

In his book, he writes about the common traits of those who are wealthy, and how the wealthy can be even someone such as your neighbor, even though you might not realize it. This book shows readers that anyone can retire with wealth, not just your traditional multi-millionaires living in huge mansions with airplanes.

This is one of the best finance books for graduation gifts because it will make you rethink what it means to be rich, which is important to understand from a young age.

Please click here to check out The Millionaire Next Door.

 

13. The Infographic Guide to Personal Finance: A Visual Reference for Everything You Need to Know

The Infographic Guide to Personal Finance, written by Michele Cagan, is one that I learned about from my readers. What’s great about this book is that it gives you a visual guide to important personal finance topics, and many people learn better from visuals.

This book is different in that it is full of infographics, which make it fun and easy to read. You will learn how to find a bank, build an emergency fund, how to pick health and property insurance, and more.

Please click here to check out The Infographic Guide to Personal Finance.

 

14. Choose FI

Choose FI was written by Chris Mamula, Brad Barrett, and Jonathan Mendonsa. These guys are behind one of my favorite Facebook communities, Choose FI, and they explain how to reach financial independence and retire early. 

While retiring early may seem out of reach if you’ve just graduated, this book teaches you how to “choose your own adventure” and improve your financial situation.

Please click here to check out Choose FI.

 

15. I Will Teach You To Be Rich

I Will Teach You To Be Rich was written by Ramit Sethi and is a excellent book for beginners. It would make a great gift for a recent high school or college graduate.

Ramit’s I Will Teach You To Be Rich is packed full of great lessons, and it is written in a fun way. He covers the basics of personal finance such as budgeting, saving money, investing, and more.

Please click here to check out I Will Teach You To Be Rich.

What do you think are the best money books for young adults?

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Source: makingsenseofcents.com

Mortgage applications dip as rates climb

The seesaw nature of mortgage applications continued for the week ending Feb. 5, as applications decreased 4.1% from the prior week, according to the latest data from the Mortgage Bankers Association.

Applications were up 8.5% the week ending Jan. 29 – breaking a two-week stretch of decreases – before falling again last week.

Mortgage rates have increased in four of the six weeks of 2021, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting, which could be causing the dip in applications.

“Jumbo rates [were] the only loan type that saw a decline last week,” Kan said. “Despite some weekly volatility, Treasury rates have been driven higher by expectations of faster economic growth as the COVID-19 vaccine rollout continues.”

The refinance index decreased 4% from the previous week but was still 46% higher year-over-year. The seasonally adjusted purchase index also decreased from one week earlier – down 5% – though the unadjusted purchase Index increased 2% compared with the prior week and was 17% higher than the same week in 2020.

The 30-year fixed mortgage rate increased to 2.96% – a high not seen since November 2020, Kan said. This has led to an uptick in refinancing, he said, as borrowers race to lock in a rate below 3%.

“Government refinance applications did buck the trend and increase, and overall activity was still 46% higher than a year ago,” he said. “Demand for refinances is still very strong this winter. Homebuyers are still very active.”

The higher-priced segment of the market continues to perform well, Kan said, with the average purchase loan sizes increasing to a survey-high of $402,200.

The FHA share of total mortgage applications increased to 9.5% from 9.1% the week prior. The VA share of total mortgage applications increased to 13.3% from 12.1% the week prior.

Here is a more detailed breakdown of this week’s mortgage application data:

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 2.96% from 2.92%
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.11% from 3.12% – the third week in a row of decreases
  • The average contract interest rate for 30-year fixed-rate mortgages increased to 2.97% from 2.94%
  • The average contract interest rate for 15-year fixed-rate mortgages increased to 2.50% from 2.44%
  • The average contract interest rate for 5/1 ARMs increased to 2.92% from 2.88%

Source: housingwire.com

Where More Young Residents Are Buying Homes – 2021 Study

Where More Young Residents Are Buying Homes – 2021 Study – SmartAsset

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The homeownership rate in America peaked at a little more than 69% in 2004 before falling to 63.7% in 2016, according to U.S. Census data. Despite the fact that it has rebounded to a little more than 65% in 2019 overall, only 36.4% of Americans younger than 35 own their homes. It may be easier in some places, though, for this young cohort to buy homes. To that end, SmartAsset crunched the numbers to find the cities where people younger than the age of 35 are most likely to own their own home – and to see where this number has gone up in recent years.

To find the cities where more under-35 residents are buying homes, we compared the homeownership rate for this demographic in 2009 with the homeownership rate in 2019 for 200 of the largest U.S. cities. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

Key Findings

  • Young homeownership has decreased overall since 2009. While there are plenty of cities where homeownership among younger residents has increased, over the past decade the under-35 homeownership rate decreased by 3.71%, on average, across the 200 cities we analyzed.
  • Under-35 homeownership lags compared to that of older generations, particularly in large cities. Though some two-thirds of all Americans owned their homes in 2019, just one-fourth (26.15%) of residents younger than 35 did in the 200 cities we analyzed. Homeownership rates are particularly low for the under-35 set in America’s largest cities: of the 10 with the highest populations, nine are in the bottom half of the study for 2019 homeownership rate (only Phoenix cracks the top half at No. 67), and all 10 had decreasing homeownership rates from 2009 to 2019, with six out of 10 — Phoenix, San Jose, Philadelphia, Dallas, Houston, Chicago — ranking in the bottom half of the study for change in homeownership rate from 2009 to 2019.

1. Midland, TX

Midland, Texas has seen a 10-year increase of 17.11 percentage points in the homeownership rate among people younger than 35, the largest growth seen in this study. The total homeownership for that age cohort in 2019 was 52.42%, the fourth-highest rate we analyzed for that metric. Together, this makes Midland the top place where more young residents are buying homes.

2. Cape Coral, FL

The homeownership for younger Cape Coral, Florida residents in 2019 was 55.54%, the third-highest rate in the study for this metric. That’s an increase of 8.71 percentage points compared to 2009, the fourth-highest increase for this metric across all 200 cities we considered.

3. Joliet, IL

Joliet, Illinois, located about 30 miles southwest of Chicago, had a homeownership rate of 63.48% for under-35 residents in 2019, the highest rate of all the cities we studied. Joliet ranks ninth for the 10-year change in homeownership, increasing 5.48 percentage points from its 2009 rate of 58.00%.

4. Mesquite, TX

Mesquite, Texas is part of the Dallas metro area, and in 2019, the homeownership rate among residents younger than 35 was 45.46%. That ranks 11th in our study, but in 2009 the rate was just 35.47%, meaning the increase over 10 years was 9.99 percentage points, third place for this metric.

5. Bakersfield, CA

Bakersfield, in central California, ranks 20th for homeownership rate among younger people in 2019, at 39.75%. That’s a 10.01 percentage point increase over the 10-year period from 2009 to 2019, the second-highest jump for this metric in the study.

6. Aurora, CO (tied)

Aurora, Colorado ranks 15th for the 2019 homeownership rate among people younger than 35, at 42.28%. That is an increase of 5.29 percentage points from 2009, the 10th-largest jump we observed in the study.

6. Port St. Lucie, FL (tied)

Port St. Lucie, Florida has the fifth-highest homeownership rate among younger people in 2019, at 51.93%. It ranks 20th for its increase in that percentage from 2009, at 2.70 percentage points.

8. Gilbert, AZ

Gilbert, Arizona, located near Phoenix, has the eighth-highest homeownership rate among residents younger than 35, at 50.08%. That increased 2.69 percentage points since 2009, good enough for 21st place in that metric.

9. Fort Wayne, IN

Fort Wayne, Indiana ranked 17th in both of the metrics we measured for this study. The homeownership rate among those younger than 35 was 41.24% in 2019, a 3.32 percentage point increase over the previous 10 years.

10. Rancho Cucamonga, CA

The final city in the top 10 of this study is Rancho Cucamonga, California, which ranked 21st for under-35 homeownership in 2019, at 39.39%. That is a 3.77 percentage point jump since 2009, the 14th-biggest increase we observed across all 200 cities in the study.

Data and Methodology

To find the cities where more young Americans are buying homes, SmartAsset examined data for 200 of the largest cities in the U.S. We considered two metrics:

  • 2019 homeownership rate for those under 35. This is the homeownership rate among 18- to 34-year-olds. Data comes from the U.S. Census Bureau’s 2019 1-year American Community Survey.
  • 10-year change in homeownership rate for those under 35. This compares the homeownership rate among 18- to 34-year-olds in 2009 and 2019. Data comes from the U.S. Census Bureau’s 2009 and 2019 1-year American Community Surveys.

First, we ranked each city in both metrics. Then we found each city’s average ranking and used the average to determine a final score. The city with the highest average ranking received a score of 100. The city with the lowest average ranking received a score of 0.

Tips for Buying a Home

  • Never too old for some expert guidance. No matter what age you are, buying a home is a big step, and a financial advisor can help you get ready to take it. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Meticulous mortgage management. Chances are you’ll need a mortgage to facilitate buying your home. Use SmartAsset’s free mortgage calculator to see what your monthly payments might be based on your financing rate and down payment.
  • Taxes don’t always have to be taxing. If you’re moving to one of the cities on this list, your tax burden might change. Use SmartAsset’s free income tax calculator to see what you’d owe the government each year if you pick up stakes and move.

Questions about our study? Contact press@smartasset.com.

Photo Credit: © iStock/valentinrussanov

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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Effective tax rates in the United States

I messed up! Despite trying to make this article as fact-based as possible, I botched it. I’ve made corrections but if you read the comments, early responses may be confusing in light of my changes.

For the most part, the world of personal finance is calm and collected. There’s not a lot of bickering. Writers (and readers) agree on most concepts and most solutions. And when we do disagree, it’s generally because we’re coming from different places.

Take getting out of debt, for instance. This is one of those topics where people do disagree — but they disagree politely.

Hardcore numbers nerds insist that if you’re in debt, you ought to repay high-interest obligations first. The math says this is the smartest path. Other folks, including me, argue that other approaches are valid. You might pay off debts with emotional baggage first. And many people would benefit from repaying debt from smallest balance to highest balance — the Dave Ramsey approach — rather than focusing on interest rates.

That said, some money topics can be very, very contentious.

Any time I write about money and relationships (especially divorce), I know the debate will get lively. Should you rent a home or should you buy? That question gets people fired up too. What’s the definition of retirement? Should you give up your car and find another way to get around?

But out of all the topics I’ve ever covered at Get Rich Slowly, perhaps the most incendiary has been taxes. People have a lot of deeply-held beliefs about taxes, and they don’t appreciate when they read info that contradicts these beliefs. Chaos ensues.

Tax Facts

When I do write about taxes — which isn’t often — I try to stick to facts and steer clear of opinions. Examples:

  • The U.S. tax burden is relatively low when compared to other countries.
  • The U.S. tax burden is relatively low when compared to U.S. tax burdens in the past.
  • Overall, the U.S. has a progressive tax system. People who earn more pay more. That said, certain taxes are regressive (meaning that, as a percentage of income, low earners pay more).
  • A large number of Americans (roughly one-third) pay no federal income tax at all.
  • Despite fiery rhetoric, no one political party is better with taxing and spending than the other. The only period during the past fifty years in which the U.S. government had a budget surplus was 1998-2001 under President Bill Clinton and a Republican-controlled Congress.

Even when I state these facts, there are people who disagree with me. They don’t agree that these are facts. Or they don’t agree these facts are relevant.

Also, I sometimes read complaints that the wealthy are taxed too much. To make their argument, writers make statements like, “The top 50% of taxpayers pay 97% of all federal income taxes.” While this statement is true, I don’t feel like it’s a true measure of where tax burdens fall.

I believe there’s a better, more accurate way to analyze tax burdens.

Effective Tax Burden

To me, what matters more than nominal tax dollars paid is each individual’s effective tax burden.

Your effective tax burden is usually defined as your total tax paid as a percentage of your income. If you take every tax dollar you pay — federal income tax, state income tax, property tax, sales tax, and so on — then divide this total by how much you’ve earned, what is that percentage?

This morning, while curating links for Apex Money — my second personal-finance site, which is devoted to sharing top money stories from around the web — I found an interesting infographic from Visual Capitalist. (VC is a great site, by the way. Love it.) They’ve created a graphic that visualizes effective tax rates by state.

Here’s a summary graph (not the main visualization):

State effective tax rates

As you can see, on average the top 1% of income earners in the U.S. have a state effective tax rate of 7.4%. The middle 60% of U.S. workers have a state effective tax rate of around 10%. And the bottom 20% of income earners (which Visual Capitalist incorrectly labels “poorest Americans” — wealth and income are not the same thing) have a state effective tax rate of 11.4%.

Tangent: This conflation of wealth with income continues to grate on my nerves. I’ll grant that there’s probably a correlation between the two, but they are not the same thing. For the past few years, I’ve had a low income. I’m in the bottom 20% of income earners. But I am not poor. I have a net worth of $1.5 million. And I know plenty of people — hey, brother! — with high incomes and low net worths.

It’s important to note — and this caused me confusion, which meant I had to revise this article — that the Visual Capital numbers are for state and local taxes only. They don’t include federal income taxes. (Coincidentally, I made a similar mistake a decade ago when writing about marginal tax rates. I had to make corrections to that article too. Sigh.)

GRS readers quickly helped me remedy my mistake, pointing to the nonprofit Tax Foundation’s summary of federal income tax data. With a bit of detective work, I uncovered this graph of federal effective tax rates by income from the Peter G. Peterson Foundation. (Come on. What parent names their kid Peter Peterson? That’s mean.)

Federal effective tax rates

Let’s put this all together! According to the Institute on Taxation on Economic Policy, this graph represents total effective tax rates for folks of various income levels. Note that this graph is explicitly comparing projected numbers in 2018 for a) the existing tax laws (in blue) and b) the previous tax laws (in grey).

TOTAL effective tax rates in the U.S

Total Tax Burden vs. Total Income

Here’s one final graph, also from the Institute on Taxation and Economic Policy. This is the graph that I personally find the most interesting. It compares the share of total taxes paid by each income group to their share of the country’s total income.

Tax burden vs. total income

Collectively, the bottom 20% of income earners in the United States earned 3.5% of total income. They paid 1.9% of the total tax bill. The top 1% of income earners in the U.S. earned one-fifth of the nation’s total personal income. They paid 22.9% of total taxes.

Is the U.S. tax system fair? Should people with high incomes pay more? Do they pay more than their fair share? Should low-income workers pay more? Are we talking about numbers that are so close together that it doesn’t matter? I don’t know and, truthfully, I don’t care. I’m concerned with personal finance not politics. But I do care about facts. And civility.

The problem with discussions about taxation is that people talk about different things. When some folks argue, they’re talking about marginal tax rates. Others are talking about effective tax rates. Still others are talking about actual, nominal numbers. When some people talk about wealth, they mean income. Others — correctly — mean net worth. It’s all very confusing, even to smart people who mean well.

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Final Note

Under the Digital Accountability and Transparency Act of 2014, the U.S. Department of the Treasury was required to establish a website — USASpending.gov — to provide the American public with info on how the federal government spends its money. While the usability of the site could use some work, it does provide a lot of information, and I’m sure it’ll become one of my go-to tools when writing about taxes. (I intend to update a couple of my older articles this year.)

U.S. federal budget

The USA Spending site has a Data Lab that’s currently in public beta-testing. This subsite provides even more ways to explore how the government spends your money. (I also found another simple budget-visualization tool from Brad Flyon at Learn Forever Learn.)

Okay, that’s all I have for today. Let the bickering begin!

Source: getrichslowly.org

Effective tax rates in the United States

I messed up! Despite trying to make this article as fact-based as possible, I botched it. I’ve made corrections but if you read the comments, early responses may be confusing in light of my changes.

For the most part, the world of personal finance is calm and collected. There’s not a lot of bickering. Writers (and readers) agree on most concepts and most solutions. And when we do disagree, it’s generally because we’re coming from different places.

Take getting out of debt, for instance. This is one of those topics where people do disagree — but they disagree politely.

Hardcore numbers nerds insist that if you’re in debt, you ought to repay high-interest obligations first. The math says this is the smartest path. Other folks, including me, argue that other approaches are valid. You might pay off debts with emotional baggage first. And many people would benefit from repaying debt from smallest balance to highest balance — the Dave Ramsey approach — rather than focusing on interest rates.

That said, some money topics can be very, very contentious.

Any time I write about money and relationships (especially divorce), I know the debate will get lively. Should you rent a home or should you buy? That question gets people fired up too. What’s the definition of retirement? Should you give up your car and find another way to get around?

But out of all the topics I’ve ever covered at Get Rich Slowly, perhaps the most incendiary has been taxes. People have a lot of deeply-held beliefs about taxes, and they don’t appreciate when they read info that contradicts these beliefs. Chaos ensues.

Tax Facts

When I do write about taxes — which isn’t often — I try to stick to facts and steer clear of opinions. Examples:

  • The U.S. tax burden is relatively low when compared to other countries.
  • The U.S. tax burden is relatively low when compared to U.S. tax burdens in the past.
  • Overall, the U.S. has a progressive tax system. People who earn more pay more. That said, certain taxes are regressive (meaning that, as a percentage of income, low earners pay more).
  • A large number of Americans (roughly one-third) pay no federal income tax at all.
  • Despite fiery rhetoric, no one political party is better with taxing and spending than the other. The only period during the past fifty years in which the U.S. government had a budget surplus was 1998-2001 under President Bill Clinton and a Republican-controlled Congress.

Even when I state these facts, there are people who disagree with me. They don’t agree that these are facts. Or they don’t agree these facts are relevant.

Also, I sometimes read complaints that the wealthy are taxed too much. To make their argument, writers make statements like, “The top 50% of taxpayers pay 97% of all federal income taxes.” While this statement is true, I don’t feel like it’s a true measure of where tax burdens fall.

I believe there’s a better, more accurate way to analyze tax burdens.

Effective Tax Burden

To me, what matters more than nominal tax dollars paid is each individual’s effective tax burden.

Your effective tax burden is usually defined as your total tax paid as a percentage of your income. If you take every tax dollar you pay — federal income tax, state income tax, property tax, sales tax, and so on — then divide this total by how much you’ve earned, what is that percentage?

This morning, while curating links for Apex Money — my second personal-finance site, which is devoted to sharing top money stories from around the web — I found an interesting infographic from Visual Capitalist. (VC is a great site, by the way. Love it.) They’ve created a graphic that visualizes effective tax rates by state.

Here’s a summary graph (not the main visualization):

State effective tax rates

As you can see, on average the top 1% of income earners in the U.S. have a state effective tax rate of 7.4%. The middle 60% of U.S. workers have a state effective tax rate of around 10%. And the bottom 20% of income earners (which Visual Capitalist incorrectly labels “poorest Americans” — wealth and income are not the same thing) have a state effective tax rate of 11.4%.

Tangent: This conflation of wealth with income continues to grate on my nerves. I’ll grant that there’s probably a correlation between the two, but they are not the same thing. For the past few years, I’ve had a low income. I’m in the bottom 20% of income earners. But I am not poor. I have a net worth of $1.5 million. And I know plenty of people — hey, brother! — with high incomes and low net worths.

It’s important to note — and this caused me confusion, which meant I had to revise this article — that the Visual Capital numbers are for state and local taxes only. They don’t include federal income taxes. (Coincidentally, I made a similar mistake a decade ago when writing about marginal tax rates. I had to make corrections to that article too. Sigh.)

GRS readers quickly helped me remedy my mistake, pointing to the nonprofit Tax Foundation’s summary of federal income tax data. With a bit of detective work, I uncovered this graph of federal effective tax rates by income from the Peter G. Peterson Foundation. (Come on. What parent names their kid Peter Peterson? That’s mean.)

Federal effective tax rates

Let’s put this all together! According to the Institute on Taxation on Economic Policy, this graph represents total effective tax rates for folks of various income levels. Note that this graph is explicitly comparing projected numbers in 2018 for a) the existing tax laws (in blue) and b) the previous tax laws (in grey).

TOTAL effective tax rates in the U.S

Total Tax Burden vs. Total Income

Here’s one final graph, also from the Institute on Taxation and Economic Policy. This is the graph that I personally find the most interesting. It compares the share of total taxes paid by each income group to their share of the country’s total income.

Tax burden vs. total income

Collectively, the bottom 20% of income earners in the United States earned 3.5% of total income. They paid 1.9% of the total tax bill. The top 1% of income earners in the U.S. earned one-fifth of the nation’s total personal income. They paid 22.9% of total taxes.

Is the U.S. tax system fair? Should people with high incomes pay more? Do they pay more than their fair share? Should low-income workers pay more? Are we talking about numbers that are so close together that it doesn’t matter? I don’t know and, truthfully, I don’t care. I’m concerned with personal finance not politics. But I do care about facts. And civility.

The problem with discussions about taxation is that people talk about different things. When some folks argue, they’re talking about marginal tax rates. Others are talking about effective tax rates. Still others are talking about actual, nominal numbers. When some people talk about wealth, they mean income. Others — correctly — mean net worth. It’s all very confusing, even to smart people who mean well.

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Final Note

Under the Digital Accountability and Transparency Act of 2014, the U.S. Department of the Treasury was required to establish a website — USASpending.gov — to provide the American public with info on how the federal government spends its money. While the usability of the site could use some work, it does provide a lot of information, and I’m sure it’ll become one of my go-to tools when writing about taxes. (I intend to update a couple of my older articles this year.)

U.S. federal budget

The USA Spending site has a Data Lab that’s currently in public beta-testing. This subsite provides even more ways to explore how the government spends your money. (I also found another simple budget-visualization tool from Brad Flyon at Learn Forever Learn.)

Okay, that’s all I have for today. Let the bickering begin!

Source: getrichslowly.org

Best Debt Consolidation Loans of 2021

Life can feel overwhelming when you’re saddled with loads of debt from different creditors. Maybe you carry multiple credit card balances on top of having a high-interest personal loan.

Or maybe you have a loan with an adjustable-rate and your payments are starting to rise each month, making your budget more and more uncomfortable.

In these situations, it may be wise to look at a debt consolidation loan. For some people, it’s a smart choice that gets your debts organized while potentially lowering your monthly payments. Ready to learn more? Let’s get started.

Best Debt Consolidation Loan Lenders of 2021

We’ve compiled a list of the best debt consolidation loans online, along with their basic eligibility requirements. Research each one carefully to see which one can help you with your debt consolidation.

Different lenders are ideal for different borrowers. Review these options and take a look at which ones best suit your needs as well as your credit profile. Once you have your own shortlist, you can get prequalified to compare loan options and find the best offer.

DebtConsolidation.com

Since 2012, DebtConsolidation.com has worked with borrowers to find the best debt consolidation service for their unique situation. If you are not really sure where to get started with your debt repayment process, then this is a good place to start.

The company offers many resources, tools, and relief programs on how to get out of debt quickly. Wherever you are at on your debt repayment journey, they may be able to help.

After you provide some information about your debts, the website will present the best way forward. You may be matched to debt consolidation loans, debt settlement companies, or credit counseling depending on your individual situation.

You can easily compare several different options through this service which is a great way to start your debt repayment journey off right!

It is completely free to use their services. However, when you are matched to a partner, the partner may charge fees for their services. Always make sure to understand the exact terms of your debt consolidation loan before moving forward with any company.

Marcus by Goldman Sachs

If you’re looking for an online-only lender, then Marcus by Goldman Sachs may be the right choice for you. Marcus offers personal loans that can be used for debt consolidation.

If you have a credit score of 660 or higher, you may qualify for a personal loan between $3,500 and $40,000. The APR range is between 6.99% and 28.99%.

One of the best things about taking out a loan through Marcus is how transparent the bank is. There are no hidden fees and that includes late fees, which is pretty rare among other lenders.

Plus, the bank gives you the option to choose your own payment due date. After making 12 months of consecutive payments, you can defer one monthly payment if you want.

The only real downside is that you’ll need good to excellent credit to qualify. And Marcus won’t let you apply with a co-signer.

Read our full review of Marcus

Avant

Avant is designed for borrowers with average credit or better and offers a number of perks for debt consolidation loans.

You can get help with your debt management by getting free access to resources, plus you receive regular updates on your VantageScore to track your credit repair process.

In fact, the average borrower using the funds for debt consolidation sees a 12-point increase within the first six months. So who can get a loan through Avant?

Most borrowers have a credit score between 600 and 700. While you don’t need to meet a minimum income threshold, most customers earn between $40,000 and $100,000 each year.

One of the great things about borrowing with them is that once you are approved and agree to your loan terms, you can get funding in as little as a day. This is a great benefit if you have a number of due dates coming up and want to get started paying off your current creditors as soon as possible.

Their loan terms range anywhere between two and five years, so you can choose to either pay off your debt aggressively or take the slow and steady route.

Read our full review of Avant

Payoff

If you have fair to good credit, you may be eligible for a debt consolidation loan from Payoff. The company offers debt consolidation loans with competitive rates and flexible repayment terms. Payoff focuses on helping borrowers pay down their high-interest credit card debt.

Payoff does this by providing debt consolidation loans between $5,000 and $35,000. The APR range is between 5.99% and 24.99%, depending on your credit score. The repayment terms will be between two and five years.

One of the advantages of taking out a debt consolidation loan through Payoff is the additional support they provide. Payoff doesn’t just want to help you repay your debt; they want to help you build a solid financial future.

The lender will provide financial recommendations, tools, and resources to help you stay on track. This will help you meet your short-term goals and build positive long-term financial habits.

Read our full review of PayOff

Upstart

Upstart’s target borrower is a younger person with less established credit. So maybe you don’t have a problem with bad credit, but you have a problem with no credit. When you apply for an Upstart loan, more emphasis is placed on your academic history than your credit history.

Upstart will review your college, your major, your job, and even your grades to help make you a loan offer. The minimum credit score is 620. Most borrowers are between 22 and 35 years old, but there are no technical age restrictions.

However, one requirement is that you must be a college graduate, which obviously limits the applicant pool. And while loan amounts range up to $25,000, you only have one term option: three years.

Upstart doesn’t offer the most flexibility with its debt consolidation loans. However, they have competitive rates and a unique approval model that may help some borrowers who want a loan.

Read our full review of Upstart

PersonalLoans.com

PersonalLoans.com directly helps individuals with low credit scores so this is a great place to come if you’re still in the credit repair process.

However, there are a few restrictions: you cannot have had a late payment of more than 60 days on your credit report, a recent bankruptcy, or a recent charge-off. But if you meet these basic guidelines, PersonalLoans.com may be a good option for you.

PersonalLoans.com is unique in that it’s a loan broker, not an actual lender. Through the application, you’ll get offers from traditional installment lenders, bank lenders, and even peer-to-peer lenders.

Your actual loan agreement that you choose is signed between you and the lender, not PersonalLoans.com. This provides a convenient way to compare rates and terms through just a single application process.

Read our full review of PersonalLoans.com

LendingClub

LendingClub is a peer-to-peer lender. That means rather than having your debt consolidation loan funded directly by the lender, your loan application is posted for individual investors to fund.

Additionally, your interest rate and terms are determined by your credit profile. The minimum credit score is just a 600, but the average borrowers is higher.

LendingClub boasts competitive rates; in fact, its website claims that the average debt consolidation borrower lowers their interest rate by 30%. You can use the website’s personal loan calculator to determine how much you could actually save by consolidating your debt.

There’s also a large-cap on loans, all the way up to $40,000. That’s on the higher end for many online lenders, especially those open to individuals with lower credit.

Read our full review of LendingClub

Upgrade

Upgrade appeals to all different types of borrowers. When assessing a new borrower, the lender considers various factors, including their credit score, free cash flow, and debt-to-income ratio.

The company offers personal loans that can be used for many different purposes, including debt consolidation. Upgrade will even make payments directly to your lender for added convenience.

If you have a minimum credit score of 600, you may qualify for a personal loan between $1,000 and $50,000. When you apply, the lender will do a soft pull on your credit so it won’t affect your credit score.

Upgrade is one of the best options for borrowers with poor credit and borrowers with a high debt-to-income ratio. And the lender offers a hardship program, so if you fall on difficult times financially, you may receive a temporary deduction on your monthly payments.

Read our full review of Upgrade

Discover

Discover offers personal loans for borrowers with good to excellent credit. You can use a personal loan from Discover to consolidate your existing high-interest credit card debt.

If you qualify, you’ll receive a personal loan between $2,500 and $35,000. The APR range is 6.99% to 24.99%. And the bank never charges any origination fees.

You must have a minimum credit score of 660 to qualify, so Discover isn’t a good option for borrowers with bad credit. And unfortunately, Discover doesn’t give borrowers the option to apply with a co-signer.

Read our full review of Discover

OneMain

With an A+ rating from the Better Business Bureau, OneMain is a lender committed to customer satisfaction. While they offer debt consolidation loans up to $25,000, you can also get a loan for as little as $1,500.

This is one of the lowest loan minimums we’ve seen, which is perfect if you have just a small amount of debt you’d like to consolidate because of exorbitant or adjustable interest rates.

In addition to applying online, you can also elect to meet with a financial adviser at a OneMain branch location.

In fact, part of the application process entails meeting with someone either at a branch or remote location to ensure you understand all of your loan options. This is a great step that most online lenders lack, allowing you to really take the time to weigh your options and decide which is best for you.

Read our full review of OneMain

Best Debt Settlement Companies of 2021

Taking out a debt consolidation loan is just one option when you want to lower your monthly payments. Another way to go is enrolling in a debt settlement program. Rather than paying off your lender in full, a debt settlement company can help negotiate an amount to repay so that the debt is considered settled.

In the meantime, you agree to freeze your credit cards and deposit cash each month into an account that will eventually be used to pay off the settlement.

However, the downside is that to make this strategy work, you must stop making payments on your owed amounts, which will cause them to go into default. That means your credit score will take a nosedive. But, the goal is to pay less than what you owe.

If you have enough debt that it seems impossible for you to ever repay, debt settlement might be a better option than filing for bankruptcy. Below are Crediful’s top two picks for debt settlement companies. You can find the full list here.

Accredited Debt Relief

Accredited regularly works with major banks and lenders to help clients negotiate settlements. These include Bank of America, Wells Fargo, Chase, Capital One, Discover, and other financial institutions of all sizes, both large and small.

They’ll even work with retailers if you have store cards with major balances. While results vary from person to person, they offer examples of clients saving anywhere between 50% and 80% on their amounts owed.

Read our full review of Accredited Debt Relief

National Debt Relief

National Debt Relief has an A+ rating with the Better Business Bureau and prides itself on trying to help those who truly have financial hardships in their lives.

One benefit of working with this company is that your funds are held in an FDIC-insured account that is opened in your name.

That means you have full control over the account and don’t run the risk of being scammed out of your money — you can rest assured that National is a reputable company.

Plus, the team is fully versed in consumer and financial law so you can trust that your interests are being served to the fullest legal extent possible.

Read our full review of National Debt Relief

What is debt consolidation?

Debt consolidation allows you to pull all of your smaller existing debts into one new debt that you pay each month. When you take out a debt consolidation loan, you receive funds to pay off all of your existing debt, like your credit card balances and high-interest loans.

You then make a single monthly payment to your lender, rather than making multiple payments each month. Keep in mind that this is different from debt settlement in that you’re not negotiating a new amount owed. Instead, you keep the same amount of debt but pay it off in a different way.

Depending on your personal situation, debt consolidation loans come with both pros and cons. It’s important to weigh both sides carefully before deciding if a debt consolidation loan is right for you.

Let’s delve into the details so that you can get closer to making a decision.

credit cards

Advantages of Debt Consolidation Loans

There are a number of advantages and disadvantages associated with debt consolidation loans. We’ll go over all of them so you can weigh your options.

Lower Your Monthly Payments

The biggest benefit of a debt consolidation loan is the ability to lower your combined monthly payments. Because interest rates on credit cards are so high, it’s possible that you can find a lower interest rate on a debt consolidation loan instead, which means lower payments.

However, your actual interest rate depends on several factors, especially your credit score. It’s important to compare interest rates and the total cost of the debt consolidation loan to your current payments to make sure you don’t end up paying more over time. The goal is to save you money.

Improve Your Credit Score

Another advantage of taking out a debt consolidation loan is that it can actually help increase your credit score. While your amount of debt stays the same, installment loans are viewed more favorably than credit card debt.

So if the majority of your debt comes from maxed-out credit cards, you could potentially see a rise in your credit score because your credit utilization on each card has gone down.

A debt consolidation loan streamlines your monthly payments. Rather than being inundated with multiple due dates each month, you simply have one to remember. This also contributes to building a healthy credit score because it lowers your chance of having a late payment.

Disadvantages of Debt Consolidation Loans

In some cases, debt consolidation loans might not be a great idea. We talked about the total cost of the loan, which needs to be reviewed holistically, not just as a monthly payment. This is true for several reasons.

Origination Fees

First, most lenders charge some sort of fee when you take out a new loan. The most common is an origination fee, typically charged as a percentage of the total loan amount.

So if you have a loan amount of $10,000 and there is a 4% origination fee, you’ll only actually receive $9,600. Next, compare interest rates and loan terms.

Even if the monthly payments look good on paper, you may be paying a lot more over an extended payment period. You can use the APR to compare interest rates and fees, but you also need to consider how much you’ll spend on interest over the entire loan term.

Changing Your Spending Habits

Finally, it doesn’t necessarily fix the root problem of your debt.

This isn’t something you need to worry about if your debt results from a one-time incident, such as an expensive medical procedure or temporary job loss. But if you habitually spend more than you earn and are still incurring new debt, then debt consolidation loans will not help you in the long run.

If this sounds like you, try to figure out how you can curb your spending to stop accruing more debt. You can even talk to a debt counselor to help create a sound management plan for your finances.

See also: Debt Consolidation Loans for Bad Credit

Source: crediful.com

Which Debts Should You Prepay First? A 6-Step Plan

Hooray, you have some extra money each month to pay down debt! This 6-step process will help you decide how to use that money wisely to reach your financial goals.

By

Laura Adams, MBA
May 13, 2020

10 Things Student Loan Borrowers Should Know About Coronavirus Relief

6 Steps to Decide Whether to Pay Off Student Loans or a Mortgage First

Let’s take a look at how to prioritize your finances and use your resources wisely during the pandemic. This six-step plan will help you make smart decisions and reach your financial goals as quickly as possible.

1. Check your emergency savings

While many people begin by asking which debt to pay off first, that’s not necessarily the right question. Instead, zoom out and consider your financial life’s big picture. An excellent place to start is to review your emergency savings.

If you’ve suffered the loss of a job or business income during the pandemic, you’re probably very familiar with how much or how little savings you have. But if you haven’t thought about your cash reserve lately, it’s time to reevaluate it.

Having emergency money is so important because it keeps you from going into debt in the first place. It keeps you safe during a rough financial patch or if you have a significant unexpected expense, such as a car repair or a medical bill.

How much emergency savings you need is different for everyone. If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

A good rule of thumb is to accumulate at least 10% of your annual gross income as a cash reserve. For instance, if you earn $50,000, make a goal to maintain at least $5,000 in your emergency fund.

You might use another standard formula based on average monthly living expenses: Add up your essential costs, such as food, housing, insurance, and transportation, and multiply the total by a reasonable period, such as three to six months. For example, if your living expenses are $3,000 a month and you want a three-month reserve, you need a cash cushion of $9,000.

If you have zero savings, start with a small goal, such as saving 1 to 2% of your income each year. Or you could start with a tiny target like $500 or $1,000 and increase it each year until you have a healthy amount of emergency money. In other words, it might take years to build up enough savings, and that’s okay—just get started!

Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

Unless Maya’s brother has enough cash in the bank to sustain him and any dependent family members through a financial crisis that lasts for several months, I wouldn’t recommend paying off student loans or a mortgage early. Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

If you have enough emergency savings to feel secure for your situation, keep reading. Working through the next four steps will help you decide whether to pay down your student loans or mortgage first.

2. Reach your retirement goals

In addition to saving for potential emergencies, it’s critical to save regularly for your retirement before paying down a student loan or mortgage early. So, if Maya’s brother isn’t contributing regularly to meet a retirement goal, that’s the next priority I’d recommend for him.

Consider this: If you invest $500 a month for 35 years and have an average 8% return, you’ll end up with an impressive retirement nest egg of more than $1.2 million! But if you wait until 10 years before retirement to start saving, you’d have to invest over $5,000 a month to have $1 million in the bank. When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

A good rule of thumb is to invest at least 10% to 15% of your gross income for retirement. For instance, if you earn $50,000, make a goal to contribute at least $5,000 per year to a tax-advantaged retirement account, such as an IRA or a retirement plan at work, such as a 401(k) or 403(b).

For 2020, you can contribute up to $19,500, or $26,000 if you’re over age 50, to a workplace retirement account. Anyone with earned income (even the self-employed) can contribute up to $6,000 (or $7,000 if you’re over 50) to an IRA.

The earlier you make retirement savings a habit, the better. Not only does starting sooner give you more time to contribute money, but it leverages the power of compounding, which allows the growth in your account to earn additional interest. That’s when you’ll see your retirement account value mushroom!

3. Have the right insurance

In addition to building an emergency fund and saving for retirement, an essential part of taking control of your finances is having adequate insurance. Many people get into debt in the first place because they don’t have enough of the right kinds of coverage—or they don’t have any insurance at all.

Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

As your career progresses and your net worth increases, you’ll have more income and assets to protect from unexpected events. Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

Make sure you have enough health insurance to protect yourself and those you love from an illness or accident jeopardizing your financial security. Also, review your auto and home or renters insurance coverage. And by the way, if you rent and don’t have renters insurance, you need it. It’s a bargain for the protection you get; it only costs $185 per year on average. 

And if you have family who would be hurt financially if you died, you need life insurance to protect them. If you’re in relatively good health, a term life insurance policy for $500,000 might only cost a couple of hundred dollars per year. You can get free quotes for many different types of insurance using sites like Bankrate.com or Policygenius.com.

If Maya’s brother is missing critical types of insurance for his lifestyle and family situation, getting it should come before paying off a student loan or mortgage early. It’s always a good idea to review your insurance needs with a reputable agent or a financial advisor who can make sure you aren’t exposed to too much financial risk.

4. Set other financial goals

But what about other goals you might have, such as saving for a child’s education, starting a business, or buying a home? These are wonderful if you can afford them once you’ve accounted for your emergency savings, retirement, and insurance needs.

Make a list of your financial dreams, what they cost, and how much you can afford to spend on them each month. If they’re more important to you than paying off student loans or a mortgage early, then you should fund them. But if you’re more determined to become completely debt-free, go for it!

5. Consider your opportunity costs

Once you’ve hit the financial targets we’ve covered so far, and you have money left over, it’s time to consider the opportunity costs of using it to pay off your student loans or mortgage. Your opportunity cost is the potential gain you’d miss if you used your money for another purpose, such as investing it.

A couple of benefits of both student loans and mortgages is that they come with low interest rates and tax deductions, making them relatively inexpensive. That’s why other high-interest debts, such as credit cards, personal loans, and auto loans, should always be paid off first. Those debts cost more in interest and don’t come with any money-saving tax deductions.

Especially in today’s low interest rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio.

But many people overlook the ability to invest extra money and get a higher return. For instance, if you pay off the mortgage, you’d receive a 4% guaranteed return. But if you can get 6% on an investment portfolio, you may come out ahead.

Especially in today’s low-interest-rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio. The downside of investing extra money, instead of using it to pay down a student loan or mortgage, is that investment returns are not guaranteed.

If you decide an early payoff is right for you, keep reading. We’ll review several factors to help you know which type of loan to focus on first.

 

6. Compare your student loans and mortgage

Once you have only student loans and a mortgage and you’ve decided to prepay one of them, consider these factors.

The interest rates of your loans. As I mentioned, you may be eligible to claim a mortgage interest tax deduction and a student loan interest deduction. How much savings these deductions give you depends on your income and whether you use Schedule A to itemize deductions on your tax return. If you claim either type of deduction, it could reduce your after-tax interest rate by about 1%. The debt with the highest after-tax interest rate is typically the best one to pay off first.

The amounts you owe. If you owe significantly less on your student loans than your mortgage, eliminating the smaller debt first might feel great. Then you’d only have one debt left to pay off instead of two.

You have an interest-only adjustable-rate mortgage (ARM). With this type of mortgage, you’re only required to pay interest for a period (such as several months or up to several years). Then your monthly payments increase significantly based on market conditions. Even if your ARM interest rate is lower than your student loans, it could go up in the future. You may want to pay it down enough to refinance to a fixed-rate mortgage.

You have a loan cosigner. If you have a family member who cosigned your student loans or a spouse who cosigned your mortgage, they may influence which loan you tackle first. For instance, if eliminating a student loan cosigned by your parents would help improve their credit or overall financial situation, you might prioritize that debt.

You qualify for student loan forgiveness. If you have a federal loan that can be forgiven after a certain period (such as 10 or 20 years), prepaying it means you’ll have less forgiven. Paying more toward your mortgage would save you more.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end.

As you can see, the decision to eliminate debt and in what order, isn’t clear-cut. Mortgages and student loans are some of the best types of debt to have—they allow you to build wealth by accumulating equity in a home, getting higher-paying jobs, and freeing up income you can save and invest.

In other words, if Maya’s brother uses his excess cash to prepay a low-rate mortgage or a student loan, it may do more harm than good. So, before you rush to prepay these types of debts, make sure there isn’t a better use for your money.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end. Only you can decide whether paying off a mortgage or student loan is the right financial move for you.