Lump sum to pay down debt

[green28]

So I'm not sure how much we will be getting, but between profit sharing from work and tax returns I would think we will have $5k (give or take) extra to use next month. Lets say its 5k and we put $1k into saving to give me $4k to work with.

We owe $7200 on our car with a monthly payment of $375 and an interest rate at 6%.
CC #1 $500 Min $25
CC #2 $5000 Min $100
CC #3 $6000 Min $125

All CC rates are around 15-18% Have used it more than we wanted to lately with christmas and getting things for the nursery ready (baby due in two months).

My first thought was to knock a CC out but now I'm thinking about putting it towards the car to get it paid off quicker, which would free up $375 a month to put towards the CC's. By that time I know #1 would be paid off anyway and then we could focus on on card then the next.

Thoughts, suggestions, other ideas?

[bjl584]

Well, personally I would get rid of the CC debt first. The car is a tangible asset. At least you can get some use out of it to get to work, etc. and the interest rate is lower than the cards.

You can pay off the cards however you want. You could pay off the $500 completely, then put the other 3500 toward one of the other ones. Maybe the 5000 one, leaving you with 1500 on that card and the 6000 on the other. Then see if you can maybe find a card with a lower rate (even 0% promo deal) to roll the remaining balances to. Then cut up the three cards and don't ever use them again.

[jpg7n16]

I like Brian's plan. In your case, the payoff should go:

a) CC#1 - 500
b) CC#2 - 5000
c) CC#3 - 6000
d) Car - 7200

Conveniently the low balance to high balance method is also high interest to low interest.

It won't feel like it at first, but this is the method that saves you both the most interest, and gets you out of debt the fastest.

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Oh and you should change your withholdings at work so that you don't get tax refunds in the future.

Use: IRS Withholding Calculator

And ask your HR about how to change them.

A $2400 refund means you should have been getting an extra $200/month all year long.

[disneysteve]

I understand the appeal of boosting cashflow but you'd be doing it at the expense of 18% interest rates on the CCs. Do as others suggested and pay off the cards first. And also adjust so you don't get that big refund going forward.

[Tree0164]

[quote=jpg7n16;282184]I like Brian's plan. In your case, the payoff should go:

a) CC#1 - 500
b) CC#2 - 5000
c) CC#3 - 6000
d) Car - 7200

Conveniently the low balance to high balance method is also high interest to low interest.

QUOTE]

I would use this strategy as well. Always get rid of the credit cards but a car loan. And make sure you don't continue to use them as well.

[Petunia 100]

Do you have good credit? Citi Platinum Select is offering 0% for 24 months, 3% balance transfer fee.

If you paid your CCs down to $7,500, then transferred the debt, that would cost $225 with no more interest for 24 months. If you kept paying the same $250 per month you are paying now, in 24 months your balance would be $1725.

If you don't transfer it, but keep paying $250 per month at 16.5% (average of 15-18%), in 24 months you will still owe $3,357.12. So by paying the balance transfer fee, you will come out ahead by $1,407.12. I think that is worth the trouble of applying for the card.

[dczech09]

I agree with everyone saying that you should pay off the credit cards first. However, you have another job to do. How did you get this credit card debt in the first place? From the sounds of it, you will need to drop your spending in order to avoid racking that kind of debt in the future. If you pay off the credit card debt without fixing your spending problems, your debt will inevitably grow back. You will need to create a budget; this is not a moral stance, but a mathematical fact.

Everyone talks about paying off credit card debt, but they don't focus on the actually problem. The first question you should ask yourself is not "how do I pay off this debt?" The first question really is "how did I get this much debt?"

As for the 0% interest recommendation by Petunia: there is no guarantee that Citi will approve the applicant. I used to sell credit cards and other debt products and showing the math as Petunia did is the way to get an easy sale. The truth is Citi would have to approve for 0%; they likely have really strong credit requirements right now. I've been getting the same offers from Citi and I see them as nothing more than bait and switch offers.

Going for a 0% offer with a balance transfer may be an option as long as it is part of a much greater financial plan. There is no point in transferring to same money if the debt is just going to come back. Seriously, focus on budgetting and figuring your finances out before going through the trouble of applying for another card.

[baptiste.tyrell]

I would get rid of the credit card debt first as the credit score is going to be used to ascertain your creditworthiness every time you have a big financial transaction. These days even your insurance company checks your credit score and decides rates accordingly.

[moneyclass]

i would elimanate the CC debt first.