Discussion in 'Budget Board' started by iNTeNSeBLue98, Dec 16, 2008.
How would you go about it?
Would you pay off the lowest balance or the highest interest card first?
Have you tried consolidating your debt onto your lower interest rate cards. Department store and retail store cards can carry interest rates of 20-23%. Then you aren't spreading your payments around on minimum payments. Also when you only have one or two payments you are less likely to miss one.
In my debt paydown I am working on right now, I have the smallest balance in line first. The way I see it, and most of the financial "gurus" I've read is that you will get momentum from paying off a bill. It's nice to see them go.
It's been working so far, fingers crossed!
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Technically, you are better off paying off higher interest cards first. It'll save you money in the long run. However, I paid off $20000 worth of cc debt about 5 years ago. I did it by doing a few things. I called my cc companies and requested lower rates, which they gave me. I then opened a new card that had a 12 month intro rate at %0 and transfered as much as possible to that card. (Helped a ton) I'm not sure what they are offering right now, but it's worth a look. Alot of card companies will try to charge you a transfer fee, but I was able to talk them out of that as well. YMMV. I, personally chose to pay off lower balance cards first because it was a mental victory to see the number of cards with a balance dwindel. Good luck, it's well worth it.
I'm choosing to pay off the lowest balances first. I know that it costs me more in the long run because some of the higher balance cards have higher interest rates but the moral victory is worth more to me, seeing those balances dissappear is a great feeling.
I really don't understand this "feel good" factor of debt. Total it all up and consider it one big monkey on your back, start picking off the leeches that are sucking you more than others. Really the best thing to do is to consolidate to one or two low interest cards if you can. It is one thing if you can't get a lower interest rate card to start paying off all the small balances but the first most informed decision it to get the overall rate down, it is just solid math.
If you consolidate you get your perceived feel good factor since you won't be paying as many little transactions per month.
I have thought about debt consolidation, but we took out a small loan in June to buy a hot water heater, range and make two repairs to the car. DH wanted to pay off his Snap On with lower interest, but we were hesitant on applying for another loan so soon - but in a quick calculation of all the CC debt, the small loan and the Snap On account we could save at least $100 a month depending on the term and the interest. I just completed the application through the credit union. Cross your fingers for us.
Do you already have a bank issued credit card? Many of them allow you to transfer balances to a current account thus not opening more accounts. You don't have to open a consolidation loan, just move all your high interest debt to the lower interest card/account.
Highest interest first, though some feel the "need" to see a card disappear to SEE their progress so they'll go to the least amount and pay it off first even if interest rate is lower.
Personally it just repeats a pattern in my mind, Instant gratification rather than good sound fiscal responsibility.
Don't believe in buying what you cant afford or Over-buying whether that be cars or homes or vacation homes....I think thats why so many people are in trouble in the first place.
BEST of LUCK to you! It will be a great feeling to be debt free!!! I think its great that you have a plan of attack.
Higher interest is the ONLY way that makes any FINANCIAL sense. The whole "pay the smallest first" to "build momentum" is crap. If you need that sort of motivation to pay off debt you need to rethink your financial priorities. Those higher interest cards might be costing you a lot of extra money each month and it will just take you that much longer to get it all paid off in the end. If you truly want to get out of debt FASTER, you pay off the highest interest first. Not to mention that interest accumulates in smaller amounts on lower balances anyway. If you are paying $50 per month in interest on one card and only $20 in interest on another with a lower interest rate, why would you willingly accept losing that extra $30 a month? Saving $30 would make me feel better than seeing the smaller amount go away faster. YMMV.
Don't you think that at times, people don't USE credit cards b/c they think they need that new whatever..
ALOT of times, people use them b/c they are forced into a situation where they must, or whatever bill doesn't get paid.
Paying the highest interest rate would save $ in the long run. But I understand the feeling of seeing the cards paid off. If looking at the amount of debt feels overwhelming then paying off the lowest amount will be a first step. "A trip of a 1000 miles starts with one step". After you have paid off one or two of the lower amounts you can switch to the highest interest rate. No one has said you have to stick to one method!
That's true. The debt could be from medical bills or some other unforeseen emergency. But that doesn't change the fact that the best way to repay them is highest rate to lowest. That will get you debt-free the fastest and at the lowest total cost.
It's annoying to me, that people think that those with cc debt are uncontrolable spending monsters.
My husband and I never WANTED cc debt. And we went through so many years not having to worry about it. But happens and sometimes, ya gotta do what ya gotta do.
But I agree..paying high off first is the way to go. Also, don't underestimate your own negotiating ability's. Call the CC company yourself and negotiate interest rates.
I would pay off the high interest card first to save money.
I often wonder this too.
Lets see we had 4 cc's & now we have 3 & it feels better to not have that extra payment.
We did think about it since the one we paid off was from Sleepy's & 0% interest for at least another year or so but it was the lowest & now it is history.
I am working on the next lowest next & I am putting all my extra money I have towards that & then I will work at the big guns & figure out which to pay off first.
Basically I am looking at lowest to highest. Because I know my payments on the lower interest cards will go farther then on the higher interest cards & I can knock them off earlier then the cc's with the higher debt on them.
My goal is 2 years & I know it can be done. DH doesn't think so but I do & sooner if possible.
Most of the stories we hear and read are due to a spending issue but I have read that the number one cause for personal bankruptcy is medical bills.
Very good advice. All it takes is a phonecall to each CC company and ask if they would lower your rate. The worst they can do is say on. Even if they drop it 1%, you've saved money.
That doesn't actually make sense. Paying more to the lower interest card causes you to pay more interest on the higher rate card. Your payment would "go farther" if you applied it to the higher interest rate debt first and would get you out of debt sooner and at a lower overall cost.
Well not the way I see it.
If my minimum payment on one card is $250 & yet that has higher interest rate & I have more money on that card & another card my minimum payment is around $200 & I have a bit less money on that card, I can swing paying more on that $200 payment then on the $250 one & see my debt go down.
I can't explain it but it works for me.
Yes I know I can apply the same extra on the higher interest rate card with more money that I owe but in my eyes I see the lower one dropping much quicker if I do that.
Basically right now I am paying off the card that has the least amount on it. I am not looking at the finance charge (OK I am). I know if I can attempt to double my payments on that card, I will pay it off that much quicker.
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