Help with Debt Issue Please!!

[OH_Angie]

I need advise. I am working to pay off my debt, and I'm now down to two 'bad' debts (other than student loans and mortgage). My question is which one should I pay first? Here are the debts:

Credit Card at 25% interest. I've tried to get them to reduce the interest rate, and they refuse. My credit is not good enough yet to get a new card with a lower rate....so I'm stuck. Balance is $2200, minimum due $80 per month.

Unsecured Loan - This is a $3,500 loan that was used to do some repairs to my house. I was offered 1 year with no interest. That ends in September 2009. My balance is $3,500. In September, my interest for the entire loan will accumulate from the first day at 21% interest.

My problem is this...I cannot afford to pay them both off by September, but if I concentrate on just one, then I can pay off one and work on the other.

So my question is, which bill do I pay first??? I got all of my little bills gone, and I'm ready to get this debt off my back...but I just cannot come up with $5700 by September.... And I don't know if it's better to pay off the credit card or the unsecure loan first. Any suggestions or help would be appreciated.

Angie

[boosami]

Is this possible?
1) Pay off the loan (paying 0% interest) by September 2009.
2) Re-apply for the loan, and use that to assume the credit card debt.
3) Pay off the new loan (paying 0% interest) by September 2010.

[OH_Angie]

Nope, that's not an option

The folks that did the work on my house offered the loan through GE Money. It's not a loan that I can renew. That would be a good suggestion, but there is no way for me to get the zero percent interest for 1 year again.

Angie

[jIM_Ohio]

The cc is the immediate concern- pay that off and worry about the LOC later.

If you post a budget, there might be more insight we can give you- because finding only $2200/year to pay down the cc is really not a lot of money. You can probably find money to pay off the whole 5k or so of debt if you really want to.

Post a budget and let the experts here help you out.

[Tree0164]

Please post a budget-you need to come up with about $450 a month to pay off that $3500 loan.

Same as cash isn't always a good deal

[rizzmo]

I would pay off the $3,500 unsecured loan first. Here is my reasoning, currently you are losing 21% interest per year on $2,200 credit card or 1.75% per month. Looking at the unsecured loan you are paying 0% interest, however if you do not pay off the loan in full by the due date you will pay 21% interest or 1.75% per month. By paying off the unsecured loan first you will save yourself 8 months of interest on $3,500. If you paid off the credit card first you would lose the interest savings, and up paying 3% interest for the next 8 months.

[disneysteve]

The cc is the immediate concern- pay that off and worry about the LOC later.

I agree. CC is at 25%. LOC is at 0%. That's a no-brainer. Pay the 25% debt first.

I also agree with posting a budget so we can try and help you find some ways to free up cash to pay off both debts faster.

[hboogz]

Isn't rizzmo's logic pretty sound though ? I know the sooner you can pay off a 25% CC the better, but by choosing to pay the 0% LOC first, you're maximing the amount of money you can allocate to that bill.

By paying the CC down first, you run the risk of losing the luxury of a 0% loan on the LOC; not paying the LOC before 9/09 @ 0% kinda defeats the purpose ?

My 2 cents.

[disneysteve]

Isn't rizzmo's logic pretty sound though ?

No.

The CC is currently at 25%. The LOC is currently at 0%. Putting money toward the LOC means the CC debt will accrue 25% interest each month. Even after the 0% expires on the LOC, it will go to only 21%, still 4% less than the CC. In no way does it make sense to pay the lower interest rate first, and especially not the 0% rate.

[noppenbd]

The way I read the OP, the LOC will add back in all the interest accrued since September 2008 at 21% APR. If OP can fully pay off the LOC before September, then no interest accrues. If OP cannot fully pay off the LOC before September, it is better to pay down the CC first.

[creditcardfree]

The way I read the OP, the LOC will add back in all the interest accrued since September 2008 at 21% APR. If OP can fully pay off the LOC before September, then no interest accrues. If OP cannot fully pay off the LOC before September, it is better to pay down the CC first.

That's how I read it too.

[inneedofhelp]

I would suggest paying off the loan first, as the interest has been accruing for over a year.

[hboogz]

That's how i read it and hence, in my opinion, it would make much more sense to pay down the LOC first.

Otherwise i would pay down the CC @ 25% first.

It all depends on when the LOC will start accruing the 21% --- 09/08 or 09/09 ?

[adam_c]

Hello Angie

I am a brand new forum member, so my advice is not worth much yet, but here it goes:

I'm assuming a couple of numbers based on your first post.

Your post indicated you can pay off either account by Sept, so it would take approximately $400/month to pay that the LOC by Sept. But you've still got the $80 min due on the CC so you're talking about $480 available each month.

If you pay the LOC off first, you'll have a balance on the CC of $1900 @ 25% come Sept. It would take 5 additional payments at $480/month to finish off the CC. The total for both accounts would be about $6,140

If you pay $480/month to the CC, it will pay off in 5 months. If you start in June paying $480 towards the LOC, you'll be at $1700 + the $700 accrued interest come Sept. It would take 6 additional payments to finish and your total for both accounts would be approximately $6,780.


If you're certain you can keep up that payment total for 15 months, I would get rid of the LOC first. If you have any doubts about your ability to meet that level of commitment, I would pay off the smaller account first just to get it out of your life.

[creditcardfree]

Welcome adam_c. It's always nice to have others join in.