Confused on what order to pay off debt

[cm5878]

So after years and years of being sucked in debt, I've finally decided I want to do something about it. I have a few debts which I would like your help in on how exactly to pay off what first. They are the following:

credit card#1(Best Buy)-$1015 balance w/0%apr until Sept 2014
credit card#2(Chase)-$500 balance w/0%apr for another 15 months, $2000 credit limit
credit card#3(Home Depot)- balance of $800, 0%until Jan 2013
credit card#4(CitiBank)-$13k balance, 10.9%
car loan-$9k, will be paid off by Sept 2015.

Now, I've heard to use the debt snowball logic but would I want to include the car loan in my debt snowball, considering the interest rate is quite low? Just hoping someone can direct me in what order I should pay these annoying debts in!

[creditcardfree]

I'd pay them off smallest to largest, if you can.

You might tell us the minimum payments, interest on the car loan, and the amount of cash you have each month to put towards debt.

[cm5878]

Sure no problem. All of the cards with exception of the CitiBank card, is $20 a month minimum payment. The big card, Citibank, is $244 a month. Car loan is $280 and usually if I play my cards right, I have anywhere between $700-$850 left over every month that I can put toward these.

Originally Posted by creditcardfree

I'd pay them off smallest to largest, if you can.

You might tell us the minimum payments, interest on the car loan, and the amount of cash you have each month to put towards debt.

[disneysteve]

I'd pay highest interest rate first, so cc#4 I assume. With the 0% cards, pay them in the order that the 0% deal expires. You want to have them repaid before that happens. Otherwise, the rate spikes up (unless you can do a balance transfer to another 0% deal).

[auron]

Originally Posted by cm5878

So after years and years of being sucked in debt, I've finally decided I want to do something about it. I have a few debts which I would like your help in on how exactly to pay off what first. They are the following:

credit card#1(Best Buy)-$1015 balance w/0%apr until Sept 2014
credit card#2(Chase)-$500 balance w/0%apr for another 15 months, $2000 credit limit
credit card#3(Home Depot)- balance of $800, 0%until Jan 2013
credit card#4(CitiBank)-$13k balance, 10.9%
car loan-$9k, will be paid off by Sept 2015.

Now, I've heard to use the debt snowball logic but would I want to include the car loan in my debt snowball, considering the interest rate is quite low? Just hoping someone can direct me in what order I should pay these annoying debts in!

Are you the type of person that needs the extra encouragement offered by paying something off completely? If so, it would make sense to pay off #2 to get yourself started, but that #4 would be killing your efforts if you use a true snowball scheme.

If I were in your shoes I would go & my google'ing is correct, pay minimums and all extra available goes to:

Paydown CC#4 (until 2-3 months before rate increase on #3)
Payoff CC#1 (jumps to 17.99% at best case from google'ing)
Payoff CC#3 (jumps to 24.99% from google'ing)
Payoff CC#2
Finish Payoff on CC#4
Payoff Car Loan

I didn't run any numbers and response is highly dependant on how much you can commit to paying over minimums, but I think a debt snowball would be detrimental to your efforts. Just my 2 cents, Good luck!

[graceful]

Ok - I'm extremely paranoid about missing the 0% promotional period. I try to make sure that the full amount is paid off a full 30 days BEFORE the promotional period ends to make sure the CC doesn't play payment date games.

I would figure out the monthly amounts needed to pay off the entire balance with a cushion and put it on "automatic" and then throw everything else at CC #4 before tackling the car.

Part of it is for peace of mind that I don't miss the deadline so it might not save the most interest but the added interest is minimal.

Assuming you will be starting with your February payment
CC#1: $1015 / 30 months = $33.83 would round up to $35.00 should pay off before 8/2014
CC#2: $500 / 14 months = $35.71 would round up to $36.00
CC#3: $800 / 10 months = $80.00

So, I would put the above on automatic (online payment - but check on them) at $151 a month and they should all be paid off before the 0% period runs out.

Then $280 towards the car loan (I'm assuming that the rate is under 10.9% since you qualified for 0% rates.) That is $431 a month total.

Is the $700-$850 a month you have to throw at the debt in addition to the minimum payments of $584 you have to pay each month? Or the total you have to pay down the debts?

In any case, I would then put the rest anywhere from $269 to $1003 a month toward CC#4 before I apply that amount to the car loan.

This relieves my mind from worrying about the 0% interest cards and make sure they are paid on time each month and before the promo period runs out and lets me concentrate on the interest bearing CC and loan.

Good luck.

[cm5878]

Thank you all for the replies. Now before I start pounding away at the cc's, do I first want to sock away some money into savings? I've seen that certain individuals say to first put aside $1000 in savings, before chipping away at debt.

[disneysteve]

Originally Posted by cm5878

Thank you all for the replies. Now before I start pounding away at the cc's, do I first want to sock away some money into savings? I've seen that certain individuals say to first put aside $1000 in savings, before chipping away at debt.

If you have zero in savings, then yes. You do need at least a small emergency fund so that if something unexpected crops up, you don't need to use your credit cards (you shouldn't be using them at all for anything). If you can set aside $1,000 in a savings account first and then go after the debt, that would be great.

[snshijuptr]

I think graceful has a good point, except I would temper it with the advice that you should call each of these credit cards and see if they charge you back the interest after the promotional period. If they charge you the back interest then pay those debts off pronto! If not, here is a calculator that lets you put in promotional period interest rates Snowball debt calculator - Become debt free at WhatsTheCost.com

[Mr Tipps]

The higher the interest rate charged the quicker you want to get that debt paid!

It may pay to see if you can consolidate all your debts into one and pay a lower interest rate (only do this if the interest rate is lower than what you are currently paying). Also, you might find a credit card offering a deal with a lower interest rate for any debt you transfer over to it - this may be an option to.

[Money Gal]

Originally Posted by cm5878

credit card#1(Best Buy)-$1015 balance w/0%apr until Sept 2014
credit card#2(Chase)-$500 balance w/0%apr for another 15 months, $2000 credit limit
credit card#3(Home Depot)- balance of $800, 0%until Jan 2013
credit card#4(CitiBank)-$13k balance, 10.9%
car loan-$9k, will be paid off by Sept 2015.

What is the interest rate on the car loan? How much extra $s do you have each month to put towards debt? How much you can put towards payments is key since you have to be mindful of 0% expiry periods.

Generally you would do this:
First direct ALL extra dollars to CC#4 and make sure you have the monthly minimum payment set for automatic payment because if you are one day late on any payment they can jump your rate up.

If you only have $500-$700 extra per month to put towards these bills, then you have 0%s that will expire before you are finished paying off CC#4, so you have to interrupt those payments and funnel money to 0% deals pre-expiration.

As you pay off the smaller balance cards, cut the cards up so you don't use them again.

[flipyourdebt]

Option 1 is to consolidate your bills into one loan with a good interest rate.

You can prioritize your bills in whatever way makes sense to you: by interest rate, by total amount owed, or by importance.

[cm5878]

Well I guess the question arises, why wouldn't I want to do a debt snowball in this scenario and pay off from smallest amount to largest?

[disneysteve]

Originally Posted by cm5878

Well I guess the question arises, why wouldn't I want to do a debt snowball in this scenario and pay off from smallest amount to largest?

A loan at 0% is costing you nothing in interest each month regardless of the balance.
A loan at 10.9% is charging you interest every month and the higher the balance, the higher the cost.

It is in your best interest to get rid of the highest interest debt first. That will save you the most money and get you debt free the soonest.

[LuckyRobin]

A lot of people here are not fond of snowballing from lowest amount owed to highest. I understand the mindset of paying off the highest interest first, but sometimes what makes the most sense logically is not actually what works best for your own personal situation. I do like, to a certain extent, the lowest to highest debt when you have some piddling debts that you can easily get out of the way. With just $500 extra to send to debt, seems like you could have the Chase card paid off in one month if you start with it. The Home Depot card could then be paid off by the end of the third month, and the Best Buy card by the end of the fifth month. If you use $700 extra it would be gone by 4 months and if you use the full $850, it'd be gone by 3 months. Then you will no longer be nickle and dimed to death by all these little cards, you will only have two debts left to focus on and you can start slamming that extra onto the Citibank card. Once it's paid for then pay off your car.

I would look at it differently if those smaller debts were larger, but they aren't and if you squeeze hard enough on the budget to send that larger amount in, by June you wouldn't have to worry about them anymore. Several small debts constantly coming at you can leave you feeling very overwhelmed. The peace of mind of going from five debts to two in three months time would be worth the small amount of extra interest you will by charged by Citibank. You also might start looking around for some 0% cards you could transfer your Citibank debt to, since it'll take about 20 months or so to pay off.

[greenskeeper]

on the 0% cards do you get hit with "accrued interest" when the teaser rate expires?

[humandraydel]

Originally Posted by greenskeeper

on the 0% cards do you get hit with "accrued interest" when the teaser rate expires?

This is BIG. You better check the terms, because you almost ALWAYS get hit with the accrued interest and it is usually a ridiculous rate like 25% or more.

IMHO your number 1 priority is to make sure all 3 of the "introductory APR" cards are paid off BEFORE the date. Otherwise, you are going to get hit with a LOT of interest. Then, anything else should be paid to the 10% credit card.

[jpg7n16]

Originally Posted by humandraydel

This is BIG. You better check the terms, because you almost ALWAYS get hit with the accrued interest and it is usually a ridiculous rate like 25% or more.

I've actually never heard of this ever happening. Do you have any links to support this?

[LuckyRobin]

The Best Buy card will hit you with the accrued interest if it is not paid off in full on time. That's one of the credit cards that has the deals that are 18 months, 9 months, and 3 months same as cash depending on how much you finance. If the Home Depot card acts like the Best Buy card where you are paying it off on a term same as cash, it will be the same with accrued interest if not paid in full on time. All the same as cash cards behave that way. The Chase card should not be like that at all as it is a standard credit card, right?

[humandraydel]

Originally Posted by jpg7n16

I've actually never heard of this ever happening. Do you have any links to support this?

You mean like this?

12 months, no interest -- I just got slammed with a massive charge of back interest