Which CC to Pay off?

[rthutchens]

I need some help. We recently sold our house and are downsizing our life to get out of debt. We are planning on using the money from the sell of the house to pay off credit card debt. What would you do? Pay off smallest balance to largest balance? If we do this we will be left with just 2 cards. Pay off highest balance to smallest smallest balance, which is also the highest interest rate to lowest interest rate? If we do this we will be left with 3 cards.

If I pay the highest interest rate card first which happens to be the highest balance card I wondered if I could contact the cc and see if they would lower the rate. I like the idea of only having 2 cards versus 2 cards.

Not sure what is the best plan of attack. Any suggestions are welcome.

 

[BSil]

Always pay the highest interest rate first. Pay that off, then attack the next highest rate.

Depending on balances and your credit, you might be able to transfer balances to a card with a 0% promotion. Just check the balance transfer rates before you do to see if the rate of the transfer would be less than the interest you would pay to leave it.

I would absolutely call the cc company and try to negotiate rates. They want their money, so they will sometimes adjust the rates for you.

Just remember to always make at least the minimums on all the cards, so you don't get whacked with late fees etc. Also, if possible, DO NOT use your cc anymore at all. Try to ay everything in cash/debit as you try to make your pay offs. Continuing to add to the balance is what hinders many form getting out from the debt.

Good luck with your plan, and hopefully soon you'll be debt free.

 

[rthutchens]

Good advice. We have had a wake up call. We were living too much on credit and everything was about to slip away. Luckily we sold our house and made a profit which I'm thankful for in this market. I hate to use the profit to pay off bills but we were running negative every month so we got to make a change. We just lowered our car payment and I'm hoping to attack the credit cards now. As soon as I feel we are better on our feet then we will start saving and looking for a house.

Sometimes you wake up and you wonder why you lived the way you did for the last so many years. I'm thankful that we have good jobs and good salaries to make this possible. Our families have always thought we have been so good with our money. I've been embarassed to even tell anyone. It feels good to get it off of my chest. Luckily I have you guys on this board.

Thanks and keep the suggestions coming.

 

[eyor44]

I agree. Pay the highest interest first and go from there. Good luck on paying them off.

 

[Marionnette]

I would list the cards from highest to lowest interest and pay them off in that order. No need to negotiate a lower interest rate on cards that you are paying off completely so don't waste your time with that.

The take the remaining cards and call for lower rates. Let them know that if they don't agree to lower the interest rate, you will be transferring the balance to another account with a balance transfer offer.

Once you have all of that taken care of, start paying down the remaining cards, beginning with the highest rate and working your way down. Everytime one gets paid off, add its payment to the minimum you were paying on the following card and keep it up. It might be easier to set up automatic payments either online from your bank or from the credit card's website. You can never be late or run out of stamps that way.

Good luck with tackling that debt! You can do it!

 

[starann]

If you have a decent credit history, and depending on how much you owe (and how long you think it will take you to pay off your CC debt, I wouldn't do this if you think it will only be a few months until you get them paid down) I would try to call the CC to see about lowering the intrest rate 'to keep your business'. Tell them another CC has a lower intrest rate. They sometimes offer balance transfers at 0% at that time as well. Certainly worth a try.


Good thing you 'caught' on now, rather then later!

 

[cheshireqt]

Well I think it depends on how much of a difference you are talking about between the interest rates on the 3 cards you have decided to pay off. Also how much you owe on each. I am not asking for the details, just saying you should factor that into your decision.
Example: If you owe $4000 at 19% interest; $6000 at 18% interest; $500 at 16% interest, I would choose to pay off the $500 first. Lets say you are going to get $3000 after settlement to put towards these cards, by paying off the $500 and then $1500 toward the $4000 you will have the satisfaction of accomplishing one of your goals, i.e., it gives you a psychological victory, allows you to close a card..and not charge to it again... and it helps you put all of your attention and resources toward paying off the other two cards. Also you will be paying down the highest interest card with the remainder of your cash.
The main thing is to not charge on them without paying off all new purchases in full, in addition to whatever you have committed to pay each month. Good Luck, you made a hard decision and I think you deserve a for that.

 

[Reddy]

You need to pay the smallest off first then all of the payment that you had been making to it needs to go to the the next smallest. Note how much you are paying to each card now & you can not change that amount unless you pay more to them.
let's say card A was getting $100
card B was $200
card C was $400
so you have been paying $700 a month to all CCs
now you pay off card A
so card B now gets $300 until it is paid off
card C stays at $400 (I don't care that the mini is now down to $350 it still gets the $400) until card B is paid off then it gets the whole $700
after that card is paid off, so you have no CCs left then you start on paying off your house/car with the $700 on top of what you were paying until all debt is gone.
then it all goes into the Disney fund

 

[Reddy]

I would like to add - take the CCs put them in a small plastic bag, then put that into a bigger bag add water & put in freezer
then you have to defrost to use
have something around the card so you can't see all of the numbers so no online buying either
while you waiting for the cards to defrost you can rethink about using them

 

[seashoreCM]

Use extra money to pay down the highest interest rate balance first.

Even if the first few chunks of extra money don't finish off any of the credit cards completely, the sum o fht e minimum paymenst will probably be about the same no matter what order you pay the cards off. So the advantage of getting rid of higher interes balance will win out.

 

[ChisJo]

I agree with everyone else...highest interest must go first. I tackled my debt starting a year and a half ago. I just paid off my 2 credit cards Friday cool1 after thinking I would never get them paid off. I kept track of the interest I was paying and was astounded at the amount. I transferred my mastercard to a zero interest transfer card for 15 months and then cancelled the mastercard. Once the zero interest card amount was paid, I also cancelled that card (as of Monday!!). My other card (visa) I kept so I only have that one card left. I decreased my credit limit to the minimum (and affordable amount) and now only use cash when I go out. I don't have outrageous credit available now because I don't want to get back to where we were. If I can't afford it without having to use my credit card, I don't buy it...period! Same as vacations...if the money isn't there, I don't go. Living in debt is paralyzing, and I don't want to have to worry about it anymore.

 

[ICF]

Highest rate first and then work your way down to lowest rate

 

[kksmom92]

Since I'm a Dave Ramsey listener I would have to say start with your smallest and work up to your biggest. That way when you get that smallest one paid off you will feel better and be more apt to keep plugging away at things. If your highest is also your biggest then say you are paying a year later and still have the 3 credit cards you might be getting discouraged and be more apt to say forget it. (Kinda like dieting)

 

[tlh0726]

You need to pay the smallest off first then all of the payment that you had been making to it needs to go to the the next smallest. Note how much you are paying to each card now & you can not change that amount unless you pay more to them.
let's say card A was getting $100
card B was $200
card C was $400
so you have been paying $700 a month to all CCs
now you pay off card A
so card B now gets $300 until it is paid off
card C stays at $400 (I don't care that the mini is now down to $350 it still gets the $400) until card B is paid off then it gets the whole $700
after that card is paid off, so you have no CCs left then you start on paying off your house/car with the $700 on top of what you were paying until all debt is gone.
then it all goes into the Disney fund

This above

You eliminate a payment thus lowering your require amount of income needed per month. the key is to continue living/paying as if that extra money is not available until all debt is paid off. If an emergency or unexpected expense does happen you can skip a month or two of making extra payments to cover the unexpected but then go back to paying the extra when you are able.

 

[kiddo76]

Definitely pay off highest interest first, then work you way down to the lowest. Why pay more in interest if you don't have to?

 

[Jeff_G]

You have to take the very real human emotional factor into account. Mathematically the highest interest rate wins, however you need to see progress to keep motivated….

I agree pay off the smallest balance first, then apply that entire payment to the next and so forth.

 

[DawnM]

If you have enough in cold hard cash to pay off the highest rate balance, do so. If not, pay the smaller amount first and build up.

http://www.daveramsey.com/article/get-out-of-debt-with-the-debt-snowball-plan/

We are debt free EXCEPT for the mortgage. We followed Dave Ramsey's principals (although we used a different plan called Crown Financial) and paid off $15K in student loans and $22K in car loans and plan to never have debt again. We also changed the house payment from a 30 year to a 15 year and even pay a bit extra on that, with a projected payoff date of 12 years right now, but would like to get it to 9.

It is NOT fun during the process....but coming out the other side is absolutely the best feeling in the world!

Dawn

 

[loganpaulsmom]

You are doing exactly what you should be doing. Take it from someone who was scammed. we were so far under a couple of years ago that we went through a consolidation company.. BIG MISTAKE.. They told us to stop paying the balances because they were now going to be the go to people on the accounts.. we thought that the amount of money that we were sending them every month was to pay off the cards.. After a couple of months we realized that WAS NOT THE CASE..
We went from paying all of our cards and NEVER being late to now having law offices call us etc etc.. We even had the sherrif's department drop off papers to appear in court.. We had 1 alternative. pay off the cards and the only way for us to do that was to cash out of retirement.. We did that and 2 months later my husband lost his job and we had nothing to fall back on..
We now are just starting to live our life again.. Hubby has been employeed with a great company for over a year.. We have no more credit cards (except for 1) no car payments etc.. Unfortunately, I live in a part of the country that is still in real trouble with real estate.. We owe more on our house than its worth so we are stuck.. But, you do what you have to do..
I say.. however you have to do it, use the money to pay off how many cards you can.. I would say start with the smallest and then go from there. it is an accomplishement when you pay anything off and you No longer have to worry about it.. I wish you lots of luck!

 

[kiddo76]

You have to take the very real human emotional factor into account. Mathematically the highest interest rate wins, however you need to see progress to keep motivated….

I agree pay off the smallest balance first, then apply that entire payment to the next and so forth.

Not everyone feels the same way emotionally about money. Many people do just fine handling credit cards and paying down debt without listening to that kind of advice (which doesnt' work for me). Financially it makes more sense to pay the highest interest first. I find it more productive to look at total debt liability than what you have on individual credit cards. You make MORE progress towards lowering your total debt if you put $700 on the highest interest first than if you put it on the lowest balance. Ramsey's advice just fools you into thinking you're making more progress than you actually are and in the mean time you are spending more in interest than you need to.

If you don't have the discipline and need additional motivation, then maybe Ramsey's would work better for you and that's fine, but it's not the best approach for everyone.

 

[rthutchens]

Thank you for the suggestions and words of encouragement. I am nervous and excited at the same time. My head says pay highest interest/balance first but my heart wants to clear as many cards as possible.

Statements are coming in for next months payment so I got to decide soon. I guess I'm scared of making the wrong decision and beating myself up over it. DH just wants bills paid so he doesn't care where we start. Even though nothing has been paid off yet, I feel the tension leaving me a little everyday.

What a great feeling!