Which CC to Pay off?

[DisneyAndRedSox]

Once you start to pay things off, keep your eye out for balance transfer offers. When I was younger I had credit card debt. I started paying as much as possible and then offers started rolling in- not sure if there are still offers in this economy but it is worth opening anything that comes in the mail. One day I finally got the deal of a lifetime- 2.9% for the life of the transfer. Yes I had to pay a balance transfer fee, but I made up for that fee in one month interest saved.

I also agree there is a personal feeling of accomplishment paying off the small bills first, even if they are not the higest rate. I got rid of the small store bills first, then took that money I paid every month and added it to what I paid on Visa. Another thing I did- I figured how much can I decrease my pay by a week and still do fine (i.e. $100.) So every week I had payroll direct deposit $100 into a separate account at the same bank. Then when it was time to pay my visa I transferred over the money to checking and had an extra $400 to pay on my bill. Once I got used to $100 less every week, I bumped it up to $125. Then I got a little raise- any extra money went into that savings account. I ended up paying it off faster than I originally planned.

Good luck and congratulations on selling the house and getting rid of that debt!

 

[DawnM]

I have never seen a balance transfer that didn't involve a FEE of some kind, usually 3% or more on the balance you are transferring.

Just make sure to read ALL the fine print!

Dawn

Once you start to pay things off, keep your eye out for balance transfer offers. When I was younger I had credit card debt. I started paying as much as possible and then offers started rolling in- not sure if there are still offers in this economy but it is worth opening anything that comes in the mail. One day I finally got the deal of a lifetime- 2.9% for the life of the transfer. Yes I had to pay a balance transfer fee, but I made up for that fee in one month interest saved.

I also agree there is a personal feeling of accomplishment paying off the small bills first, even if they are not the higest rate. I got rid of the small store bills first, then took that money I paid every month and added it to what I paid on Visa. Another thing I did- I figured how much can I decrease my pay by a week and still do fine (i.e. $100.) So every week I had payroll direct deposit $100 into a separate account at the same bank. Then when it was time to pay my visa I transferred over the money to checking and had an extra $400 to pay on my bill. Once I got used to $100 less every week, I bumped it up to $125. Then I got a little raise- any extra money went into that savings account. I ended up paying it off faster than I originally planned.

Good luck and congratulations on selling the house and getting rid of that debt!

 

[DawnM]

Needing a little help is nothing to be ashamed of. I applaud the OP for asking the questions and getting finances in order. We all need a little help with discipline every now and then and Dave Ramsey's plan has helped a LOT of people! It is a great starting point for folks in these situations.

Using words like "undisciplined" and "fools you into thinking" make it sound like those of us who have used his plan are complete idiots, which I DO NOT BELIEVE for a minute!

Dawn

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.

 

[figment3258]

We did debt snowballing and it worked great. You start smallest to biggest no matter the interest

 

[kiddo76]

Needing a little help is nothing to be ashamed of. I applaud the OP for asking the questions and getting finances in order. We all need a little help with discipline every now and then and Dave Ramsey's plan has helped a LOT of people! It is a great starting point for folks in these situations.

Using words like "undisciplined" and "fools you into thinking" make it sound like those of us who have used his plan are complete idiots, which I DO NOT BELIEVE for a minute!

Dawn

Please don't put words in my mouth. I wasn't criticizing anyone who follows Ramsey's advice, only the advice itself. That's great that it worked for you, but it's not advice that I would ever listen to.

Good luck OP in however you decide to handle your debt.

 

[bettymae1121]

I'm going to say that unless one of your cards has an outragous % rate, it probably doesn't matter that much which way you go!

I have three cards I'm paying down. I also couldn't decide which way to go, highest balance to lowest balance, or highest % to lowest %. I ran the pay-off senarios both ways, and both ways it took the same amount of months to pay them off, and doing the highest % first only cost a few more dollars than the other way around. I wound up doing the lowest balance to highest blance, but the lowest balance was also the highest %, with the middle card being slightly higher than the last card I'm paying off (by like .5% so not huge).

 

[It'sWDW4me]

I'm in the "highest interest rate first" camp.

Something else to consider. DO NOT cancel your credit cards right away after you pay them off. Definitely don't use them again - either cut them up or freeze them in a block of ice as someone had suggested earlier - but don't cancel them. By leaving them open (at least for a little while), you'll have a lower total balance to total available credit (across all cards) ratio. That helps boost your credit score. As you continue to pay off cards, THEN start to cancel accounts.

Good luck to you. CC debt is horrible to live with and difficult to pay off.

 

[mrodgers]

I have never seen a balance transfer that didn't involve a FEE of some kind, usually 3% or more on the balance you are transferring.

Until the past year or so, I've never seen a balance transfer offer (0% for x months) WITH a transfer fee.

I played the 0% transfer rate with debt for quite a long time.

As for high interest vs. low balance payoff.....

I have my recently created budget made out for many years (disregarding pay increases) in Excel with each year on a seperate tab. I have all debts and minimum payments and interest charges calculated out until the minimum payments pay the cards off in an excel tab.

I've played with extra payments many ways on my excel budget and the difference with 5 debts ranging from 24% to under 7% and 2 years worth of snowballing (not a lot of disposable income,) paying highest interest first nets a total debt payoff of only 2 months earlier.

Paying off small balances first nets 2 debts paid off in several months compared to with highest interest debt having the first debt paid off in a year and a half.

Having 2 total debts paid off fast is a bigger motivator to me than having 1 debt paid off after a long time just to gain 2 months earlier total pay-off.

 

[AmberHeartsDisney]

Pay off the smallest card first put all the extra money on there you can. Then move to the next one and so on.

 

[ICF]

Why pay more in interest if you don't have to?

Because Dave Ramsay says so.....didnt you know ??!?!!

 

[bootc3]

I vote for smallest first approach. I adhere to Dave Ramsey advice. More important whatever you pay off close the account, don't put the card in ice, cut up the card. CLOSE THE ACCOUNT, so you are not tempted to use it again. Create an emergency fund and get on a budget. Congrats on getting on the road to being debt free. We have 2 years to go and we will be living like no one else. Thanks to Dave!

 

[DawnM]

Ah, I see....you know, I hadn't even looked into it until this year and we don't have a cc balance so I wasn't looking into it for myself. I was just surprised to see a fee as I didn't know there was one.

So, it may be a newer thing.

Dawn

Until the past year or so, I've never seen a balance transfer offer (0% for x months) WITH a transfer fee.

I played the 0% transfer rate with debt for quite a long time.

As for high interest vs. low balance payoff.....

I have my recently created budget made out for many years (disregarding pay increases) in Excel with each year on a seperate tab. I have all debts and minimum payments and interest charges calculated out until the minimum payments pay the cards off in an excel tab.

I've played with extra payments many ways on my excel budget and the difference with 5 debts ranging from 24% to under 7% and 2 years worth of snowballing (not a lot of disposable income,) paying highest interest first nets a total debt payoff of only 2 months earlier.

Paying off small balances first nets 2 debts paid off in several months compared to with highest interest debt having the first debt paid off in a year and a half.

Having 2 total debts paid off fast is a bigger motivator to me than having 1 debt paid off after a long time just to gain 2 months earlier total pay-off.

 

[kiddo76]

Be very careful before you close any account, especially if it is an old account or high credit limit. Closing accounts could negatively affect your credit score, by decreasing the age of open accounts and affecting your debt ratio. Just don't keep charging what you can't pay off. If you have a credit card that you do want to keep, it is a good idea to keep it active by charging a small amount and paying it off in full each month to prevent the bank from closing your account for lack of use.

 

[brerrabbit]

Not being a DR follower (or wanting to be quite frankly) I have to ask. Does the snowball thing, paying lowest to highest balance envision a large cash inflow at some point, and if so does it still apply? The reason I ask is that from what little I know about DR I thought that advice was relevant for debt reduction if you were just paying things off from your current income. I would think if there is a large cash inflow at some point you would want to lower your interest costs as fast as possible because that is real money.

 

[BoogasMom]

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)

I agree 100% with this post. It makes a really big difference psychologically when you pay off a debt. In the meantime, call the credit card companies with which you are carrying the higher interest rate balances and ask them to lower your interest rate. If they don't, then transfer the balance to one of your lower rate cards and close the higher rate one out. If they want to maintain your business, then they will lower it. Good luck!!!

 

[disneyfreakk]

OP,

Since you are having a hard time deciding which cards to pay off first, why not put a calculator to it. Figure out how much extra it is going to cost you to pay off smallest balances first. Do the math and chose which way you can live with!

Personally I would pay off the highest intrest rate first. I would also like to point out that avail credit is not debt! If you are trying to mantain or fix your credit rating, then do not close your cards off once you pay them off! I can not stress this enough. Not everyone who has had cc debt in the past is currently without self control. There are alot of us who are perfectly able to charge only what we have the cash to pay off at the end of the month. We just use the credit cards for the rewards! Its free money for the taking!

 

[amylevan]

I don't follow Dave Ramsey - to be honest I don't even know who he is. So some of the advice on here is strange to me. Why would you pay off lower interest rate debt first? That's just wasting money...money that can be used to pay off other debt to help you become debt free. Knowing that you are saving money in the long run should be enough emotionally to keep going.

So my advice is pay off the highest interest first.

 

[Jeff_G]

I don't follow Dave Ramsey - to be honest I don't even know who he is. So some of the advice on here is strange to me. Why would you pay off lower interest rate debt first? That's just wasting money...money that can be used to pay off other debt to help you become debt free. Knowing that you are saving money in the long run should be enough emotionally to keep going.

So my advice is pay off the highest interest first.

The advice of "snowballing" i.e. paying the smallest debt and rolling that payment into the next debt is to keep people motivated. For many people they need to see a positive reward in what they are doing in order to keep going. Yes mathematically paying down the highest interest rate make more sense however if all you relied on was the match you shouldn’t have any credit card balances anyways since paying interest is akin to throwing money away. It wasn’t math that got you into debt, it was other factors.

Here is the thing you can always try one way or another for a few months and switch, it’s not like you have to stick one method, you MUST however pay more than the minimum balance.

It was very difficult for me to close out my credit cards, you sort of hold onto them like a fake security blanket… I always paid down the balances to zero but kept them around in case of an emergency… What flawed thinking that is… Just what you need in the middle of an emergency a big credit card bill that you can’t pay down to zero the next month.

I finally save up 6 months of emergency fund and close the accounts. Yes I know all important credit score will suffer but I will never barrow money again and I will just deal with higher insurance rates. Not owing ANYONE anything is VERY liberating…

Think what you can do with your monthly income once you no longer have to pay a car payment, mortgage payment, credit card payments…

Again if you try it out and don’t like it you can always go back into debt…

 

[Nicolepa]

Not being a DR follower (or wanting to be quite frankly) I have to ask. Does the snowball thing, paying lowest to highest balance envision a large cash inflow at some point, and if so does it still apply? The reason I ask is that from what little I know about DR I thought that advice was relevant for debt reduction if you were just paying things off from your current income. I would think if there is a large cash inflow at some point you would want to lower your interest costs as fast as possible because that is real money.

In his method, if you were to get a large chunk of $$, you would first fully fund your emergency fund if you haven't already. Then you apply ALL available money to your next smallest card(s) no matter what.

I've researched his method, and some things I agree on, others (like the snowball) I don't. If I had debt, I would do the snowball, but I would always start with the highest interest rate regardless of the $$ on the card. But then again, I'm all about the numbers.

 

[Jeff_G]

In his method, if you were to get a large chunk of $$, you would first fully fund your emergency fund if you haven't already. Then you apply ALL available money to your next smallest card(s) no matter what.

I've researched his method, and some things I agree on, others (like the snowball) I don't. If I had debt, I would do the snowball, but I would always start with the highest interest rate regardless of the $$ on the card. But then again, I'm all about the numbers.

How about this, let’s say you have a $200k 30 year mortgage running at 5.5% interest, you also have a $10k credit card bill running 4% interest.

You just found out you won the Nigerian lottery and will receive $10,000 (after you send them a check for $1000 to release your money from their customs department). So assuming your $10,000 shows up an your bank account is not emptied, where would you put that $10,000.

Numbers would say put the 10k down on the mortgage because that will save you the most money. If you put the 10k down on the credit card you will only save $133.33 a month or $3,130.08 in interest but you would save 304 months of payments ( paying the minimum). It sort of boils down to tolerance for risk, what is more risky 10K of credit card debt or 10K more on your house?

It’s fun to think about these things and agree most people’s finical advice being given / sold is geared to the masses…