Tax Debt Loan

I create a plan to reduce debt, and one of the questions I have is: is it better (financially) to eliminate the mortgage debt prior to the educational loan debt? I want to pay less interest for me to think that higher interest rates (mortgage) is what I have to pay. However, there are tax benefits of mortgage debt and the debt of both school loans, and I'm not sure if I'd miss out on tax benefits of better keeping the mortgage until I ' have eliminated the debt of student loans.

All advice is appreciated.

If interest rates are similar and the total interest paid annually for education is $ 2,500 or less, and if your income qualifies you for the interest adjustment of student loans, then education is the best debt to have. Why?

1) Many tax laws depends on your adjusted gross income. (AGI). Having a lower AGI allows other things on your tax return (2% and 7.5% of the thresholds in Appendix A, Earned Income Tax Credit, child care credit, the limits of the contribution of IRA, tons of stuff). Although both lower your taxable income, the debt reduces your AGI eduactional while mortgage interest does not work.

2) Sometimes, you do not have enough items in Annex A of the use, if you end up taking the standard deduction. If your standard deduction is $ 10,000 and everything else on Schedule A is $ 8,000, then the first $ 2,000 of mortgage interest you can save $ 0 in taxes.

These are the basic thoughts. As others have said, the only way to know for sure is to do your return both ways and compare the savings tax liability compared to what you lose in the interest. Thank you to the complexity of the tax system we have, there is simply no easy answer. A good first step would be to return to your '06 tax return and play with the numbers since the software is not yet available '07.

The only difference between the mortgage debt and loan debt education is how you use them.

1. Mortgage debt is sought by means of deductions detailed, so if you do not have enough mortgage interest and any other itemized deductions, such as property taxes, income taxes and local state, donations, then you will not be able to itemize your deductions and would have to deal with standard deductions.

2. Education is a separate interest deduction. You can deduce that no matter how much you have other deductions.

Although the interest rate is lower education, the additional deductions you because you have mortgage interest rates could cancel the higher interest.

You have to run the numbers both ways (to make 2 Tax Returns) to find the answer to your particular situation.
The answer is composed of how much you pay interest over how you pay tax in each direction.