OneRoomSchoolHouse Posted June 24, 2009 Share Posted June 24, 2009 Ok, I know all of this is pretty personal but I am so afraid that we will make the wrong decision and end up putting us in a worse situation. Here are the facts: We just sold a few large items and will have $11,250 in cash. We are trying to pay off our debt and can't seem to decide where to put this money. We have the following: Credit Card #1 $6200 at 6.65% interest with $96 min payment Credit Card #2 $4350 at 6.24% interest wih $88 min payment Credit Card #3 $3800 at 13.99% interest with $62 min payment Car Line of Credit $10,800 at $9.69% interest with $370 monthly payment (We do have more debt - student loans and mortgage, but we are not concerned about those right now) We have no money in savings, but have a fully funded HSA (Health Care Savings account). So, we don't have to worrry about any health emergencies. I think the best thing to do would be to pay off the car and take the $370/month to save up $1000 at first for emergency savings, then pay off credit cards using the snowball effect. Dh thinks it would be best to pay off the CC with the $13.99 interest and put $1000 in savings and the rest on the car to help pay it down. This would only give us $62/month to put on the other CC's. Please help us, we are NOT financially minded people and I would really like to do what is best. I would like some advice from a non-personal point of view. Thanks!! Quote Link to comment Share on other sites More sharing options...
Unicorn. Posted June 24, 2009 Share Posted June 24, 2009 My .02 as someone who has btdt. Pay off your biggest debt and higher interest first. Since you have the cash to pay off the car- do so. Take whatever cash you have left ($450) and put that in savings. Use the $370 from the car payment to pay the 13.99% cc. (in addition to what you are paying on it now) When that one is paid off- pay everything toward the 6.65% card (so that would be $528). When that one is paid off, put everything toward the last CC. Make sure you cut up the CC's- keeping only the one w/ the smallest interest rate. And then only use it for true emergencies. I would also then reccomend that you spend 1 year paying everything you have been paying toward debt, to your savings. HTH- Quote Link to comment Share on other sites More sharing options...
6packofun Posted June 24, 2009 Share Posted June 24, 2009 What you said! That's what I would do *after* calling the CC company with the higher interest rate and asking if they would lower it! Many companies are willing to do this right now, especially if you've been OK at paying each month. That would be ideal, IMO. But either way, I agree with paying off the car and freeing up that money to pay off the credit cards IF you will be disciplined to do it. :) Quote Link to comment Share on other sites More sharing options...
Guest Alte Veste Academy Posted June 24, 2009 Share Posted June 24, 2009 We have the following: Credit Card #1 $6200 at 6.65% interest with $96 min payment Credit Card #2 $4350 at 6.24% interest wih $88 min payment Credit Card #3 $3800 at 13.99% interest with $62 min payment Car Line of Credit $10,800 at $9.69% interest with $370 monthly payment (We do have more debt - student loans and mortgage, but we are not concerned about those right now) I would personally pay off credit cards #1 and #3, put $1000 in savings and take the monthly payments for 1 & 3 and add them to #2's payment every month. Calculate that to see how long it would take to pay it off. It might seem logical to pay off the car first but I'm guessing that the car has a payoff date (I could be wrong, haven't ever had a car line of credit--just straight auto loans). To me, that means it's a sure thing. It will be paid off...it's just a matter of time. Credit cards are too easy to let go and make minimum payments and they will go on forever unless you have a windfall (as you do now) or unless you make a payoff plan and stick to it. If you pay off #1 and #3 and apply it to #2, you will more than triple your payment to that card and could be out of debt within a few years...maybe around the time you would have the car paid off just by virtue of it having a finite end. Good luck! :001_smile: Quote Link to comment Share on other sites More sharing options...
Guest Alte Veste Academy Posted June 24, 2009 Share Posted June 24, 2009 (edited) Pay off your biggest debt and higher interest first. Since you have the cash to pay off the car- do so. Take whatever cash you have left ($450) and put that in savings. Use the $370 from the car payment to pay the 13.99% cc. (in addition to what you are paying on it now) When that one is paid off- pay everything toward the 6.65% card (so that would be $528). When that one is paid off, put everything toward the last CC. Make sure you cut up the CC's- keeping only the one w/ the smallest interest rate. And then only use it for true emergencies. Yes, this is the common wisdom. It is perfect advice but only if there is follow through. The problem is that so many people don't have the self-control to direct the extra money to the credit card payoff plan and the credit card balances just continue to grow. If the OP really feels like this is something she and her dh can commit to, it's the right advice. My suggestion truly would cost more money than the higher interest/higher balance plan BUT it would be more likely to get done, if that makes any sense. Edited June 24, 2009 by Alte Veste Academy Quote Link to comment Share on other sites More sharing options...
klmama Posted June 24, 2009 Share Posted June 24, 2009 I would personally pay off credit cards #1 and #3, put $1000 in savings and take the monthly payments for 1 & 3 and add them to #2's payment every month. Calculate that to see how long it would take to pay it off. I agree! You will free up a lot of cash this way to apply toward those other debts, and you'll also have that emergency savings. Quote Link to comment Share on other sites More sharing options...
OneRoomSchoolHouse Posted June 24, 2009 Author Share Posted June 24, 2009 It might seem logical to pay off the car first but I'm guessing that the car has a payoff date (I could be wrong, haven't ever had a car line of credit--just straight auto loans). I just looked it up, the car has 2 years and 9 months left (33 months). If I paid of #1 and #3 and reallocated the money to pay off #2, it would be paid off in 19 months. Quote Link to comment Share on other sites More sharing options...
Dobela Posted June 24, 2009 Share Posted June 24, 2009 One year we made the decision to pay off our car 18 months early with some extra cash we had coming in. It ended up being the best decision because it was the largest monthly payment. We also didn't have to pay the entire amount owed. Since we were paying it off early, we didn't have to pay interest on those last months - close to another $1000 saved up front. If you decide to pay off your car, call the loan holder first and ask for a pay off amount and then ask them how long you have to pay that amount (we had 30 days). You may be pleasantly surprised at a much lower amount. Quote Link to comment Share on other sites More sharing options...
OneRoomSchoolHouse Posted June 24, 2009 Author Share Posted June 24, 2009 I also worry with the economic situation, if the $370 in my pocket would be better. I think about: what if dh gets laid off, grocery items cost more, or utilities go up in price. I would still have the cc debt, but would have the $370 cushion to keep me from charging more to my cc's. I am loving all the advice, please keep it coming. Quote Link to comment Share on other sites More sharing options...
OneRoomSchoolHouse Posted June 24, 2009 Author Share Posted June 24, 2009 One year we made the decision to pay off our car 18 months early with some extra cash we had coming in. It ended up being the best decision because it was the largest monthly payment. We also didn't have to pay the entire amount owed. Since we were paying it off early, we didn't have to pay interest on those last months - close to another $1000 saved up front. If you decide to pay off your car, call the loan holder first and ask for a pay off amount and then ask them how long you have to pay that amount (we had 30 days). You may be pleasantly surprised at a much lower amount. My electronic account has a listed pay-off as of 6/23/09 as $10,700. Too bad, I was getting kinda excited. Quote Link to comment Share on other sites More sharing options...
Imperfect Posted June 24, 2009 Share Posted June 24, 2009 You can search for snowball debt calculators and plug in the numbers to see how long it would take to pay everything off depending on what you payoff now. Here is a pretty good one http://www.whatsthecost.com/snowball.aspx HTH Rene Quote Link to comment Share on other sites More sharing options...
Guest Alte Veste Academy Posted June 24, 2009 Share Posted June 24, 2009 (edited) I just looked it up, the car has 2 years and 9 months left (33 months). If I paid of #1 and #3 and reallocated the money to pay off #2, it would be paid off in 19 months. Wow! See, now that just makes me smile. You could be completely out of cc debt in 19 months. Yes, the logical thing is to pay down that huge car debt BUT cc debt has a crushing feeling to it that a car loan just doesn't. Knowing I could have all ccs paid off in 19 months and then a mere 2 years left to pay off the car...that would take a weight off my shoulders. Sometimes it's more about how bad debt makes you feel than the actual numbers. I also worry with the economic situation, if the $370 in my pocket would be better. I think about: what if dh gets laid off, grocery items cost more, or utilities go up in price. I would still have the cc debt, but would have the $370 cushion to keep me from charging more to my cc's. I am loving all the advice, please keep it coming. This is tough. Only you can ultimately make this decision. If your dh is in a line of work that causes you to be worried about layoffs, that's worth considering. Owning the car outright would be very important. It would be more money in your pocket but potentially at the cost of obtaining complete freedom from car and cc debt in less than three years. I don't know how tight your expenses are every month. If you're super constrained by finances now or if things are so tight that you're actually going into more cc debt every month, then the $370 in your pocket might be the way to go. But if it makes you breathe a sigh of relief and then gets spent on loosening up the pocket book instead of accomplishing its ultimate goal of paying off the ccs, what have you really gained in the end? Aside from paying off the car, you'll still be up to your ears in cc debt. The real test is going to be whether or not you will really dedicate that extra money to the cc payoff plan. These are tough choices. If only we had a crystal ball sometimes... Edited June 24, 2009 by Alte Veste Academy Quote Link to comment Share on other sites More sharing options...
sassenach Posted June 24, 2009 Share Posted June 24, 2009 (edited) I just plugged in your cc info into the previously linked snowball calculator. According to this, if you pay the car off and then snowball according to interest rate, it will take 45 months to pay off the cards. That does not include the 3 months to build up your emergency fund. According to this calculator, it would take you 30 months with the other method (paying off 1 and 3). Plus, you'd have your emergency fund. Edited June 24, 2009 by Shannon831 Quote Link to comment Share on other sites More sharing options...
OneRoomSchoolHouse Posted June 24, 2009 Author Share Posted June 24, 2009 I too did the calculator two different ways. #1) Pay off car, then snowball th credit cards would take 25 months. (This means I only typed in the 3 cc's into the calculator, but gave it the additional $370/month to pay towards them). #2) Pay off #1 and #3, then snowball car and #2. This would take 27 months. (I only plugged car and #2 into the calculator, but gave it the minimum amounts from the 2 already paid off cc's). Since we both did the calculator and got two different answers, I wonder if I am using it correctly. :glare: Quote Link to comment Share on other sites More sharing options...
melissel Posted June 24, 2009 Share Posted June 24, 2009 How's your credit? Can you get a 0% APR card and roll any/all of the CC debt over to it? Then you could use the money to pay off the car easily, and after that, you could work on killing the CC debt while it's at 0%. That's how we finally managed to get out from under our debt--we kept rolling from 0% card to 0% card. Quote Link to comment Share on other sites More sharing options...
AngieW in Texas Posted June 24, 2009 Share Posted June 24, 2009 I would use the cash that you have right now to pay off the car and establish an emergency fund. It will only be around $500, but that could make a huge difference. Then I would make minimum payments on cards 1 and 2 while paying as much as possible on card 3 (should be at least 62+370=$432). Once that card is payed off, put everything you can on card 1. After that put everything on card 2. You will actually pay off faster by paying off all of card 3 and putting the rest of your cash on the car, but I think you'll feel a lot safer when you own the car outright. The $500 leftover from paying off the car will be nice to have in case of an emergency. You should see about getting a 0% for 6 months rollover card. That will help tremendously. Quote Link to comment Share on other sites More sharing options...
Rosie_0801 Posted June 24, 2009 Share Posted June 24, 2009 I also worry with the economic situation, if the $370 in my pocket would be better. I think about: what if dh gets laid off, grocery items cost more, or utilities go up in price. I would still have the cc debt, but would have the $370 cushion to keep me from charging more to my cc's. I am loving all the advice, please keep it coming. $370 in your pocket doesn't count for much. It will get spent, that's all. It might delay you charging anything to your credit card for a week or so, but having that much sitting in your purse or bank account provides an illusion of having money, so you'll ease off your scrimping. Get rid of your debt, then when you have money in your purse, it will be real money, not an illusion. Just my opinion, but I'm not terribly experienced with money, never having had enough to get experience with! :grouphug: Rosie Quote Link to comment Share on other sites More sharing options...
Kathy in MD Posted June 24, 2009 Share Posted June 24, 2009 What is the security for your line of credit? is it your home or car? Or is it a signature loan (no collateral)? If it's your home or car, I'd pay it off first. Cars can be seized and mortgages foreclosed on. Credit cards companies don't have as much leverage in case of a catastrophy. Then if you truly have self control, I'd put a minimum of $1500 in an emergency fund. And the main purpose of the emergency fund would be to cover car repairs so your dh can get to work. Only then would I start working on credit card debt, starting with the highest interest rate ones. Quote Link to comment Share on other sites More sharing options...
JudoMom Posted June 24, 2009 Share Posted June 24, 2009 I also worry with the economic situation, if the $370 in my pocket would be better. I think about: what if dh gets laid off, grocery items cost more, or utilities go up in price. I would still have the cc debt, but would have the $370 cushion to keep me from charging more to my cc's. I am loving all the advice, please keep it coming. I would say pay off the car and then attack the cc's. Like you say, if your dh got laid off, you'd not have the $370 payment to worry about. If you choose to go this route, though, the only way you're going to get out of debt is to apply the $370 to your cc's. If utilities or groceries go up, you must cut back before using the extra money to pad your budget, and cc's cannot be an option anymore. Speaking of budget--do you guys have a budget set up that you're both willing to stick to? Getting out of debt can be painful, but the feeling it creates when you're done is very much worth it. Quote Link to comment Share on other sites More sharing options...
chiguirre Posted June 24, 2009 Share Posted June 24, 2009 Kathy is right about the security for the car loan. If you have even a remote chance of facing a layoff, I'd pay off the car first. A car can be reposessed, a home equity loan can be foreclosed, but cc debt is unsecured. All a bank can do is harass you and lower your credit rating, they can't come and take any of your property to satisfy the debt. A note to the wise, don't keep a bank balance in a bank where you have cc debt if you do find yourself in an emergency and fall behind on payments. I love Melissa's idea about the 0% teasers, especially for that 13.99% card. It may be hard to get an offer like that now, but you could try for a card with a more reasonable rate and transfer the balance. I hope you can find a path you'll both feel comfortable with! Quote Link to comment Share on other sites More sharing options...
Snickerdoodle Posted June 24, 2009 Share Posted June 24, 2009 I would pay the car first and the immediately start working on CC #3. If you have even a remote chance of facing a layoff, I'd pay off the car first. A car can be reposessed, a home equity loan can be foreclosed, but cc debt is unsecured. :iagree: Quote Link to comment Share on other sites More sharing options...
SquirrellyMama Posted June 24, 2009 Share Posted June 24, 2009 I would be tempted to pay off the care first since it has such a big payment. You would end up with more money to pay off other debts than paying off any of the other cards. Use the remaining to start an emergency fund. When we paid off our debt we did go with the smallest debt first which did not have the largest payment but our car payment wasn't that large. Quote Link to comment Share on other sites More sharing options...
rafiki Posted June 24, 2009 Share Posted June 24, 2009 . Quote Link to comment Share on other sites More sharing options...
Alison in KY Posted June 24, 2009 Share Posted June 24, 2009 I would personally pay off credit cards #1 and #3, put $1000 in savings and take the monthly payments for 1 & 3 and add them to #2's payment every month. Calculate that to see how long it would take to pay it off. It might seem logical to pay off the car first but I'm guessing that the car has a payoff date (I could be wrong, haven't ever had a car line of credit--just straight auto loans). To me, that means it's a sure thing. It will be paid off...it's just a matter of time. Credit cards are too easy to let go and make minimum payments and they will go on forever unless you have a windfall (as you do now) or unless you make a payoff plan and stick to it. If you pay off #1 and #3 and apply it to #2, you will more than triple your payment to that card and could be out of debt within a few years...maybe around the time you would have the car paid off just by virtue of it having a finite end. Good luck! :001_smile: :iagree: You really should at least have that $1,000 in your emergency fund. Your just one illness, or breakdown away from adding more CC debt to your lives. Also, you will feel so good to have those CC's paid off, you might even be able to find more big ticket items to sell and finish off that last CC. And, I know you might not like this, but you could check on selling your vehicle and getting something that is paid for. BTDT :D. We had a beautiful 1998 Avalon, new, that we then sold to buy a bigger vehicle, a new 2000 Expedition, which we sold a year later for a 1996 white Ford Windstar with a red strip down the side. It wasn't pretty at all, but having no car payment was absolutely wonderful. A couple years later I said goodbye to my ugly minivan and moved up to a 2001 Windstar that was alot nicer, and we were able to pay cash for it. Anyway, just a thought, and it only hurts a little:lol: Alison Quote Link to comment Share on other sites More sharing options...
snickelfritz Posted June 24, 2009 Share Posted June 24, 2009 Pay off the car and put the leftover money in your emergency fun. That gives you a few hundred dollars of a start. Take a couple of months and build the emergency fund up. Then start on the credit cards. If I'm paying extra each month, I tackle the higher interest payment. If I have a lump sum, I tackle any that I can get paid off completely and go for the highest payment. That extra breathing room each month makes sure we don't have to charge anything else. Quote Link to comment Share on other sites More sharing options...
AprilTN Posted June 24, 2009 Share Posted June 24, 2009 As you see, you can pay your debt down more than one way. In the end, all that matters is that you reduced your debt. This is where you have to look at you and your dh's financial behavior to determine which would be best for you. Personally, *I* would pay off CC#3, CC#2, pay $2000 on CC#1, and put 1100 in the bank. I would rather have a car loan than a credit card payment. CC companies can change the terms, fees, interest rate, etc. That car loan is more stable. Also, I may be wrong about this, but a car loan's interest isn't figured in the same way as a credit card's interest. What I mean is that if you had a credit card with $10,800 and 9.69% interest, you would pay more interest than a car loan with the same stats. And pat yourself on the back for paying down debt no matter which way you do it. Quote Link to comment Share on other sites More sharing options...
NoPlaceLikeHome Posted June 24, 2009 Share Posted June 24, 2009 Here is an excellent article that I read yesterday. Suze Orman recommends saving for an emergency fund first due to the increased risks of lay-offs. This makes sense to me since if you pay off you credit card debt or whatever debt first without an emergency fund, then if there is a lay-off the result could be a disaster such as homelessness or the like. http://www.usnews.com/articles/business/your-money/2009/04/03/suze-orman-and-the-new-rules-of-credit-card-debt.html I have read this advice from many different so-called experts and it makes sense to me:) She also has a sensible strategy for paying off credit cards after you save for an emergency fund. Just my 2 cents:) Quote Link to comment Share on other sites More sharing options...
lynn Posted June 24, 2009 Share Posted June 24, 2009 definately pay off the high interest credit card. Then what's left on the next highest interest etc. I have always heard not to pay down a house mortgage or car payments but to save until you can pay it off in full. You risk losing all your money if you just pay down the balances,. Quote Link to comment Share on other sites More sharing options...
cmarango Posted June 24, 2009 Share Posted June 24, 2009 I think that you need to ask yourself a few more questions. 1. What is the likelihood of your husband being laid off? Could either one of you find some sort of work quickly if this was to happen? 2. What are your monthly household expenses that have to be covered? 3. Are you currently having a difficult time paying off your debt? 4. How likely are you to run up your debt again? - be brutally honest I am asking these questions to determine how much of an emergency savings fund you need. It is far more important to have that cushion no matter what the current economic climate than paying off debt (if you can currently afford your debt payments). Most people don't think about the fact that they will be on the hook for COBRA payments with the loss of a job and unemployment benefits will not cover all of your expenses. If the likelihood of being laid off is low, then I would say put away 3 months of living expenses (mortgage/rent, food, utilities). If the likelihood is higher then you may need to put most of your money in that savings fund. I know that this will not be the most "feel good" recommendation that you get, but what good is paying off debt to just accumulate it again when disaster (being fired, disability, roof needs replacing) strikes? Depending on how you answer the other questions, my advice with what to do with the rest of the money changes. Christina Quote Link to comment Share on other sites More sharing options...
KidsHappen Posted June 24, 2009 Share Posted June 24, 2009 Given the current economic situation, my hubby & I would pay off the 13.99% interest card and put the rest in an emergency fund. Then snowball the next highest interest cc and then the next. We would not pay off the car because if you have a three to six month emergency fund you could continue to make the payments on that if you had a layoff. While it would be nice to have no car payment we tend to think of that more like a mortgage payment or student loan payment. It would be nice to not have them but they can be paid off without temptation to reuse them. Quote Link to comment Share on other sites More sharing options...
Marylou Posted June 24, 2009 Share Posted June 24, 2009 www.crown.org Quote Link to comment Share on other sites More sharing options...
mcconnellboys Posted June 25, 2009 Share Posted June 25, 2009 I think it best to pay off the largest interest rate card, then put the rest down on the car. I'm not sure why you'd put $1000 in savings when it won't earn enough interest there to matter. Getting rid of the largest interest drains first saves you the most money. You will pay off the car sooner (I'm assuming there's no penalty for early pay-off), freeing up that extra monthly money. So, in nine months the car is paid off and you will have an extra $370 per month for other things, not to mention the interest savings by paying off early. Quote Link to comment Share on other sites More sharing options...
OrganicAnn Posted June 25, 2009 Share Posted June 25, 2009 (edited) I would pay cc #1 and #3, but I would keep some money as the start of an emergency fund (the amount would depend on if you have any savings currently and the likelihood you will need it ... old car, health issue etc). You can always use some of the money from the emergency fund to pay down the remaining debt later if you want to. Once you pay down the car loan, can you reborrow? If not, you will have less liquidity (ie flexibility) if you repay the car loan. With the CC you can theoretically run up the balance if an emergency happens. But many people are having their limits reduced, so this may not be an option either. So I think some emergency fund would be good. This is how I would think through it for myself. I think you should really take your own/family's behavior into consideration. If you keep money for an emergency fund, will you spend it on non emergency purchases? If you pay down your credit cards, will you be tempted to use them to buy things you don't need? What will motivate you the most to save/reduce debt? Do whatever will work best for you. Any debt you pay down will be good. Any money you save will be good. The only way you can really go wrong is if you fritter away the money and do nothing with the debt or emergency fund. Edited June 25, 2009 by OrganicAnn Quote Link to comment Share on other sites More sharing options...
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