Applying a surplus to debt - does this sound like a good plan?

[ilovediznee]

Hi Everyone! I recently have accumulated $2,000 to apply toward my debts. I am using the first $1,000 to eliminate several doctors bills, which will net me an additional $60 per month, which I am very excited about.

I have the other $1,000 and I'm not sure what to apply it too. I have one loan that I REALLY want to get rid of and has a balance of $4,000 and I pay $245 a month (12.9%) - this one is the highest in interest AND the minimum is the highest amount as well. Going by the current payment I would pay it off in 19 months, but if I apply that $1,000 and reduce the balance to $3,000 and pay the same amount each month of $245, it will knock it off to being zero in 14 months. Do you agree that this it s a good plan? I also think I might apply that extra $60 to it as well, which I know will help.

Just wanted someone else's thoughts before I do anything.

Thanks - Diane

 

[Southernmiss]

Hi Everyone! I recently have accumulated $2,000 to apply toward my debts. I am using the first $1,000 to eliminate several doctors bills, which will net me an additional $60 per month, which I am very excited about.

I have the other $1,000 and I'm not sure what to apply it too. I have one loan that I REALLY want to get rid of and has a balance of $4,000 and I pay $245 a month (12.9%) - this one is the highest in interest AND the minimum is the highest amount as well. Going by the current payment I would pay it off in 19 months, but if I apply that $1,000 and reduce the balance to $3,000 and pay the same amount each month of $245, it will knock it off to being zero in 14 months. Do you agree that this it s a good plan? I also think I might apply that extra $60 to it as well, which I know will help.

Just wanted someone else's thoughts before I do anything.

Thanks - Diane

Do you have other $$ set aside as an emergency fund? I would make sure I've got something set aside just in case. If this is $$ on top of the emergency fund, then by all means apply it toward that $4000.

Your peace of mind and being ok with this is all you really need to be concerned with.

I completely understand needing peace of mind.

YOu may want to check out Dave Ramsey who has simple common sense methods of getting out of debt. He'd suggest paying down smaller debts first and adding those payments to the larger debts until it was all paid off. But he doesn't have to answer to my own peace of mind. So if it made you happier to get rid of the higher interest rate first, i'd say do it.

 

[ilovediznee]

Yes, we have money put aside in an emergency fund. I also wanted to share that I listed all my medical bills and two of the five offered me a discount if I paid for the balance due. One was by 50%!

Diane

 

[supersnoop]

YOu may want to check out Dave Ramsey who has simple common sense methods of getting out of debt. He'd suggest paying down smaller debts first and adding those payments to the larger debts until it was all paid off. But he doesn't have to answer to my own peace of mind. So if it made you happier to get rid of the higher interest rate first, i'd say do it.

Dave Ramsey's advice is certainly "simple," but it is not "common sense." He puts more emphasis on the emotional aspect of paying down debt then on the financial aspect. If you need the short-term emotional effects in order to stay motivated, follow his advice, but if you can strive toward a long-term goal, just follow your common sense.

 

[ZephyrHawk]

Your plan seems sensible.

In general, its better to pay off higher interest debts first, which you've got covered. For those instances where it's not most beneficial to pay off the highest interest first, it's usually because one loan has a high monthly payment and a low-ish remaining principal balance. In those cases, if you can pay off the debt and free up that large payment amount for monthly snowballing into other debts, you could end off in a more beneficial situation than if you had concentrated on paying off the high interest loans. From your description, the debt you want to get rid of ALSO fits this secondary category.

Most important, you'll feel good about getting it off your back as soon as possible. So yeah, pay it off girl.

 

[ilovediznee]

If I pay the $1000 to drop the balance from $4000 to $3000, continue with the $245 each month AND go by and pay and extra $10 or so dollars a week, will that overall bring the balance down faster as well?

I wondered because I would want it to go towards the principle and not the finance charge.

 

[hpfan100]

If I pay the $1000 to drop the balance from $4000 to $3000, continue with the $245 each month AND go by and pay and extra $10 or so dollars a week, will that overall bring the balance down faster as well? I wondered because I would want it to go towards the principle and not the finance charge.

That is a great way to tackle that debt. That's what I do. I would pay the 1000 to it, keep making the 245 payments and the 60 a month you are saving from the medical bills. Anytime you have an extra couple of bucks apply that too. Before you know it that bill will be gone.