Paying off Debts

[lisasayzhi]

So, I'm young, but I do have a lot of debt. My parents haven't helped me financially since I turned 18, so due to purchasing textbooks and gas and other things, I have quite a bit on credit cards. I'm currently a full-time college student, and I waitress about 20 hours a week at IHOP. I think I'll work closer to 30 hours this summer though, but I am taking summer classes. Currently, I have some credit card debt and a lot in student loans, and I'd like to get some opinions as to where my money should be going in what priority. So far, I am thinking I should go for the one with the highest interest rate first. Here are my choices:

1. Credit Card A: $1104.18 due, 17.740% APR
2. Unsubsidized Loan: $2676.35 due, 4.700%
3. Credit Card B: $685.86 due, 0% APR until Feb. 2007
4. Subsidized Loans: $10273.55 due, 0% interest until I graduate (5/2008)

I am thinking I should tackle them in that order, but should I just pay solely on one debt until it is payed before moving to the next, or should I pay a little on each one that is accruing interest?

Thank you for the help!

[Tree0164]

How much are you able to put towards the debt each month?

[Ima saver]

Pay the maximum on the first debt , credit card A, then when that is paid off, pay that amt. on the 2nd loan.

[lisasayzhi]

Originally Posted by Tree0164

How much are you able to put towards the debt each month?

That's difficult to say, as my wages depend on my tips. I'd say I could most likely pay about $400 a month toward debt.

[Ima saver]

You should be paying them in the order you have them listed. Pay the most you can on debt #1 and the minimum on the other 3. When you get debt 1 paid off, take that money plus the minimum you were paying on debt #2 and pay it all on debt #2 while continuing the minimum on debt 3. This is called snowballing.

[Haku]

I think you've got the right idea, lisa. Pay the minimum on all but one, and throw every penny you have one at a time until they're all paid off.

The only thing I would suggest is, at around the beginning of the new year, to start throwing everything you can towards credit card B. The idea is to delay paying that one as long as you reasonably can to take advantage of its 0%, but then to pay it off before the February deadline. That way, you won't pay any interest on credit card B.

[boefixepa]

Are your student loans such that you don't have to pay on them until 6 months after you graduate? If you can focus on the just the CCs while still in school. Make sure to at least make the minimum on the 0% interest card so that is stays that way.

Good luck

[lisasayzhi]

Originally Posted by boefixepa

Are your student loans such that you don't have to pay on them until 6 months after you graduate? If you can focus on the just the CCs while still in school. Make sure to at least make the minimum on the 0% interest card so that is stays that way.

Good luck

Yes, that's correct, but the one loan has unsubsidized interest, which means it's gaining interest every month, while the other one is subsidized, so the government is paying the interest while i'm in school...

[Bookie]

Good advice from all. Do be sure to pay the minimum each month on any accounts that require a payment. Always. Otherwise you could trigger an increase to a penalty rate that is punitive, to say the least.

[lisasayzhi]

Thanks everyone for the input! I shall do my best to pay them off in that order, and hopefully asap

[flash]

Definitely clear the high interest cc as fast as possible. Don't let the others sneak up on you, though. The unsubsidized is an excellent point. Do you have any idea how it's accruing?

it depends on whether you can eliminate CC A and make a sizeable dent in the unsubsidized loan before Feb '07 (with your irregular income, I appreciate that will take some effort to calculate)


if it will take you most of the time between now and then to get rid of CC A, then I say immediately hit CC B second as who knows what that rate will adjust to, that 4.7% on the unsubsidized loan isn't too shabby as rates go.

alternately, you can plan on shopping for another 0% card late next fall to surf CC B to, if that's workable then leave the list in the order you have it. me personally, I let emotion get in the way, I want the credit cards gone.

[veronak]

I say pay the minimum on each but the one with the lowest balance pay as much as you can until it is paid off and then move to the next doing the same thing (A D. Ramsey idea and I love it) or start with the one with the highest interest

What I did was paid off 3 CC with the smallest amout owed (I wanted a sense of accomplishment) and then (now) I am tackling the one with the highest interest

Good luck

[puck36]

Have you ever heard of Dave Ramsey? If not check out his site for information on getting out of debt.

Here is what I and Dave would do.
1. Get $1000 in savings for an emergency fund.
2. Pay off debt smallest to largest amount (Dave calls this Debt Snowball), you make the suggested payments on all but the smallest one. Every extra dollar you have goes to the smallest debt and when that’s paid off move to the next debt. Here is what you list should look like. Dave doesn’t care what the interest rate is.
a. Credit Card B: $685.86
b. Credit Card A: $1104.18
c. Unsubsidized Loan: $2676.35
d. Subsidized Loans: $10273.55

If you have any more questions please feel free to leave a comment here.

wow, two endorsements for Dave's snowball plan on this forum.


you people got guts!









That's a joke people!! lighten up!

in all seriousness Lisa, another important question to consider is whether you are looking to manage this debt or eliminate it.

it would seem a self evident question but I realize many people do not hold the aversion to debt that I do.

Dave's plan is designed with a mentality of eliminating the debt for good so interest rates do not matter, accomplishment does. Since you are attacking the debt seriously with every spare dollar, the extra interest you may pay by not wiping out the high interest stuff first is negligible when compared with the motivation you get by quickly having one less payment due each month.

[Tree0164]

If you have $400 a month to put towards the debt, I would pay off Credit Card B in 2-3 months. Hopefully that credit card will offer you a credit card balance transfer of less than 17%.

Good luck! Hopefully the credit cards are cut up now

[sakigt]

What if she cant pay #3 in time before the intrest returns (and depending on terms could be back-charged).

Not all debt repayment is a cookie-cutter plan.

Pay off debt #1, pay a small amount each month on #3 even if it slows the progress of #1.

Your priority should be 1,3,2 then 4. Make sure number 3 is paid off before January. I have a similar situation with my Amex that expires in a few months.

[debtdude]

In order, I'd go 1,3,2,4.

However, I'd also looking at transfering the 17% card over to the zero % after you see if they have a low interest transfer rate. This could drop the 17% to < 4%. Just check for transfer fees that may apply.

[PRICEPLUS]

While there are many ways of getting to where you want to go you must choose that which is workable for you. My suggestion, for what it is worth, is to pay off you debts as you arranged them 1 through four.

Follw the advice you find on this boad for cutting expenses and saving money. You can reach your goal if you persevere. Good luck!