What to pay off first?

[KrystalKF]

Okay here is the debt in question:

Discover (3.9% interest) - $1570 balance - $30 minimum payment
Chase (0% soon to be 19%) - 1100 balance - 20 minimum
Car (12%) - 2800 balance - 220 payment

I recently got insurance money to fix my car and used it to pay down the loan substantially and made the next 5 payments. I repaired my car with out-of-pocket money and made a good profit. I also have about $1000 coming to me from other sources and am wondering what to pay down first.

Now I'm thinking the obvious answer would be to pay down the Chase card because it has the lowest balance and highest interest rate. BUT I'm considering trying to pay down the car loan since it is the largest chunk of money every month. I'm not interested in Dave Ramsey's snowball theory because, although I love his take on it, I don't need motivation in paying off the smallest balance. I just want to get it paid down the fastest and am not so concerned if I spend a little more in interest. Piece of mind is priceless in my world.

Another thing, I'm not the best at budgeting so I'm not sure how much money I'd be able to commit to bills every month. I'm 20 years old and have an expected low-income & high debt (IMO). I'm mainly just wondering where I should allocate this $1000.

Thanks Krystal

P.S. The car "balance" is actually the payoff but the per diem is so low (.98 a day) it's not really important to get into that much detail!

[sweeps]

"soon to be 19%"... How soon is soon? I would pay off the Chase before your rate goes to 19%. Then focus on the car.

[KrystalKF]

Either May or June, I believe.

[jIM_Ohio]

May is next month, pay off the chase card now.

You should then figure out- HOW MUCH can you afford to pay on debt each month?

$200, $400, $1000?

This would then form the rest of basis for what to pay to which bill. If you are bad at budgeting, be smart about this- save yourself the 19% and pay off the CC now. While learning to budget, it may help to learn when things are tight, so as things loosen you will be smarter with your money.

[LuxLiving]

You said that you paid the next five car payments...

Be Careful == you do know that if you have an open loan with them that they expect you to send in a payment every single month regardless of whether you've paid ahead or not, right?

You don't want to think you're good till August w/no car payment and get surprised w/a late fee & credit PLONK because you didn't send in a payment in April.

I'd pay the Chase card off then hit the car hot and heavy!

[vsjhoc]

Where's the usual chorus of "How Much Do You Have In An Emergency Fund?"?

Seriously, some people would recommend that you use part of the money to pay down debt and stash the rest in an interest-bearing account. If it were me, I'd whack the Chase bill.

[Ima saver]

Pay off chase!

[sweeps]

Originally Posted by vsjhoc

Where's the usual chorus of "How Much Do You Have In An Emergency Fund?"?

Valid point, but we could be missing a lot more hidden details than just a lack of an EF.

I've resigned myself to answering these questions based solely on the information provided. If an OP leaves out important details, it's their responsibility.

[puck36]

You need to list the bills smallest to largets amounts. Then pay the minimum payment on all but the smallest debt. Take every extra dollar you have and pay off the smallest debt. Once the smallest debt is gone then move to next smallest and pay that off and so on. This is called the debt snowball. Who cares about the interest rate on the debt. Most people are debt free in 18-24 months. I was debt free (and still am debt free) in 24 months.

1. Chase $1,100
2. Discover $1,570
3. Car $2,800

So that $1000 you will be getting should go to and another $100 to pay off the Chase card. If you can get on a budget you will be able to find money that you didn't know you had. Good luck.

[disneysteve]

Originally Posted by puck36

Who cares about the interest rate on the debt.

Wow. The credit card companies must love you.

No way would I pay off a 3.9% loan before a 12% loan. That just doesn't make any sense financially. Yes, I understand Dave Ramsey's snowball, but OP said the motivation isn't a factor. From a strictly dollars and cents standpoint, the biggest savings will come from paying highest rate to lowest rate.

In fact, I wouldn't even make any extra payments on the 3.9% loan. Just pay the minimum until it is repaid. Why? Because you can invest your money very conservatively and earn more than that loan is costing you.

[puck36]

Originally Posted by disneysteve

Wow. The credit card companies must love you.

No way would I pay off a 3.9% loan before a 12% loan. money very conservatively and earn more than that loan is costing you.

She is getting $1000 so if you add $100 to that she can pay off that $1,100 CC. Then she would have $1,570 & $2,800 loan left. I could care less what she does. I'm just saying that if she pays the smallest amount first, she will be out of debt. Not sure what she makes but she could be out of debt in less than a year.

Anyways I have good credit that when I had debt it was at 0%.

[disneysteve]

Originally Posted by puck36

She is getting $1000 so if you add $100 to that she can pay off that $1,100 CC.

I agree with you there. The 19% card should be the first to go.

After that, I think it makes more sense to pay the 12% car loan first than the 3.9% credit card.

I know a lot of people follow the smallest to largest balance plan, as per Dave Ramsey. I'm one of those who subscribes to the highest to lowest interest rate plan since it saves more money in the end.

Ultimately, I agree that OP's debt is pretty minimal relative to resources for repayment. Whichever method is used, OP will be debt-free in a fairly short time (although as I said above, I would not make any extra payments on the 3.9% loan. I'd rather see that money go to build an EF or other savings).

[KrystalKF]

Yeah, I definitely made sure that I wasn't going to need to make any more payments til August. I work at a bank, too so I knew to be especially careful. I put most of it towards principal but made the next 4 payments on my car so I could use the "extra" money to pay towards what I had to put my cc's for car parts & repairs. Thanks for the advice everyone! I just got some money in the mail for a VERY late birthday gift so I'll be able to knock out the entire chase balance now. Wish me luck! -Krystal

[KrystalKF]

Oh yeah, and I don't have an emergency fund I had $650 in a mutual fund that had earned about 8.5% interest over the course of two years, but I used the money to pay down the Discover.. again! But I think I can have more self-control from now on.

[Magicman]

I am with puck36 for your long term success. It is a good decision to pay off your smallest bill first, then allocate the money that you would have been paying to that bill and apply it to the next smallest in line.

You have limited debts, but high $$ amounts.

Consumer debt is tricky. You have to remember that the Credit Card company charges you interest on your outstanding balance on a daily basis. When you borrow money through a credit card agreement, the clock starts ticking against you until the full amount is paid off.

My advice to you is to continue with your car payment every month. Try to structure the earliest payoff of your CC debts. Plan to pay off the Chase card in full at the earliest date. Then pay off your your Discover card.

Freedom from debt is a good feeling. Good luck with everything.

[b4freedom]

What you should do:

1) Pay off:
a) Chase
b) Car
c) Discover

2) Stop partying so much. Beer is expensive and leads to bad things which is more expensive. Save the drinking until you have kids, you'll need it then.
3) Get another job and
a) pay off debts asap
b) save as much money as you can

[kv968]

Originally Posted by KrystalKF

Oh yeah, and I don't have an emergency fund I had $650 in a mutual fund that had earned about 8.5% interest over the course of two years, but I used the money to pay down the Discover.. again! But I think I can have more self-control from now on.

See, this is where you have to look at the big picture. You sell and pay taxes on a fund that's earning 8.5% interest (although not guaranteed) and pay off a card that's charging you 3.9%. You would have probably been better keeping the money in the fund and paying the minimum on the card as Steve suggests. Granted, the 8.5% isn't guaranteed and maybe you just don't want that debt over your head, but financially, that would have been the better move.

[KrystalKF]

Well I paid it down when the Discover teaser rate expired and it spiked to 18%. After I paid it down to a couple of hundred dollars I called them to ask what the interest rate was, because I was considering getting a new card and they offered to lower it to 3.9%. So that's where it stands now until June. AND I found out today that my Chase isn't actually going up until August.. So now I guess maybe I should work on the Car and Discover and wait on the Chase. I'm so difficult..

[poundwise]

Originally Posted by kv968

See, this is where you have to look at the big picture. You sell and pay taxes on a fund that's earning 8.5% interest (although not guaranteed) and pay off a card that's charging you 3.9%. You would have probably been better keeping the money in the fund and paying the minimum on the card as Steve suggests. Granted, the 8.5% isn't guaranteed and maybe you just don't want that debt over your head, but financially, that would have been the better move.

Of course, another way to look at it is that one ought to have paid off all high-interest debt before investing in the first place. It seems to me this fund was more or less a 'dabble' so I think its fine that it was cleared out to pay on a credit card.

I usually hardly care if someone wants to pay high interest to low or large balance to small, but in this case, the Chase card is both the highest interest and the smallest debt, so it must go first.

The interest between the car and the Discover rate is huge while the balance isn't so different. Couple that with the fact that the car payment is much larger than the minimum payment on the card and I don't see any real justification for paying the card first. Pay the car second and then the Discover last.

It really won't make that big of difference overall in your case, because your balances are not so large. We don't know your income or budget but I would think that just about anyone could knock out these debts completely in less than 12 months total; if you'll get serious about it.

Still, there is no reasonable way of figuring this where the Chase card doesn't go first.

[anonymous_saver]

Even though your interest rate doesn't raise until August, I would still pay off the Chase card right now - you have the money and would never have to think about that debt again! Then I would take the $20 you were paying each month on the Chase card to put towards extra payments on the car loan. Do you have extra money each month that you could add to agressively paying off your debt? Even $50 can help. Once you car is paid off, I would continue to pay the minimum on your Discover Card, and start your emergency fund again. Once you have 3 months worth, I would try to focus on paying off that debt, or starting other saving goals as well (down payment for example).

Do you have any school loans?