Debt pay-off question

[ActYourWage]

I purposely made the sample that way to get the point across. If it should be obvious which to pay off first with the amounts equal, it is just as obvious with the amounts unequal. The CC paid off first will get you out of debt quicker and with less cost - no matter what the numbers are. I don't care if the other debts add up to only $5,000 or if they add up to $50,000 - it is irrelevant. Logically the best choice is always to pay off the highest interest first - period.

Logical and money don't mixed for most people......or people wouldn't be in debt....something to think about.

Example: I want a new car. It is $30,000. I don't have $30K. Logical reasoning would not buy the car, but I really want this car, so I put it on a CC and now in debt to my eye balls. This is my point, people don't usually think logically when dealing with money. If they were thinking logically then they would have known that they did not have the cash and therefore would not buy the car.

Now money and behavior/emotion....now that's a match made in heaven. That is why my point toward paying down CC from lowest balance to highest w/o worrying about the interest rates. If the person is attacking their debts hard then the extra interest is not going to amount to much anyway since that debt will be paid for soon. It really is 20% math and 80% behavior.

[ceejay74]

This is an interesting discussion. I'm currently paying down my highest-interest debt, which is at 8.99%. Depending on job and income fluctuations, I'm anywhere from a few months to a couple years to getting rid of it, but I'm already thinking about what I'd want to do next.

I could go straight to the next-highest rate, a student loan. Or I could go after the last of my "bad" debt, the AX credit card. I could fix the emotionally "bad" debt and finish paying off my dad (I'm halfway done). Or I could start attacking my mortgage in an attempt to get some equity and refi it.

Since I've got some fixed, some variable; some with tax benefits attached and some without, it's kind of hard to settle on what I'll do next.

Here are the debts and their rates, if anyone is interested in weighing in:

Personal debt:
CO loan 8.99% fixed (FOCUSED ON PAYING OFF 1ST)
AX CC 3.99% fixed
Loan from Dad n/a

Mortgage debt:
US Mortgage 5.75% var.
UK Mortgage 1: 1.49% var.
UK Mortgage 2: 1.49% var.
UK Mortgage 3: 1.49% var.

Education debt:
AS SM 4.5% fixed
AS FM 3.0% var.
AS DL 6.55% fixed
NT DL Subsidized unknown (not due til '12)
NT DL Unsubsidized unknown (not due til '12)
NT FM 5.7% var.
NT Education n/a til '12

[ActYourWage]

What are the balances of these debts? This will help determine which to pay.

[ceejay74]

Personal debt:
CO loan $10,511 8.99% fixed (FOCUSED ON PAYING OFF 1ST)
AX CC $12,188 3.99% fixed
Loan from Dad $6,000 n/a

Mortgage debt:
US Mortgage $177,428 5.75% var.
UK Mortgage 1: $81,376 1.49% var.
UK Mortgage 2: $17,156 1.49% var.
UK Mortgage 3: $18,063 1.49% var.

Education debt:
AS SM $15,801 4.5% fixed
AS FM $2,145 3.0% var.
AS DL $12,581 6.55% fixed
NT DL Subsidized $1,043 unknown (not due til '12)
NT DL Unsubsidized $8,411 unknown (not due til '12)
NT FM $3,743 5.7% var.
NT Education $30,090 n/a til '12

[ActYourWage]

Personal debt:
CO loan $10,511 8.99% fixed (FOCUSED ON PAYING OFF 1ST)
AX CC $12,188 3.99% fixed
Loan from Dad $6,000 n/a

Mortgage debt:
US Mortgage $177,428 5.75% var.
UK Mortgage 1: $81,376 1.49% var.
UK Mortgage 2: $17,156 1.49% var.
UK Mortgage 3: $18,063 1.49% var.

Education debt:
AS SM $15,801 4.5% fixed
AS FM $2,145 3.0% var.
AS DL $12,581 6.55% fixed
NT DL Subsidized $1,043 unknown (not due til '12)
NT DL Unsubsidized $8,411 unknown (not due til '12)
NT FM $3,743 5.7% var.
NT Education $30,090 n/a til '12

Are you a Doctor? That is quiet a bit of debt. Anyway, I would repay the debt this way:

Payoff:
1. CO loan $10,511 8.99% fixed
2. Loan from Dad $6,000 - will relieve any tension in the air about money
3. NT DL Subsidized $1,043 unknown (not due til '12) (You need to just get rid of these quickly)
4. AS FM $2,145 3.0% var. (You need to just get rid of these quickly)
5. NT FM $3,743 5.7% var. (You need to just get rid of these quickly)
6. AS DL $12,581 6.55% fixed
7. AS SM $15,801 4.5% fixed
8. AX CC $12,188 3.99% fixed
9. NT DL Unsubsidized $8,411 unknown (not due til '12)
10. NT Education $30,090 n/a til '12
11. UK Mortgage 2: $17,156 1.49% var.
12. UK Mortgage 3: $18,063 1.49% var.
13. UK Mortgage 1: $81,376 1.49% var.
14. US Mortgage $177,428 5.75% var.


You NEED to win some small battles, it will give you an emotional lift if you can knock out a couple of these debts.

Do you have a budget/spending plan?

[ceejay74]

No doctors, just three debt-ridden people creating a family and trying to fix our past mistakes.

Interesting choices. My husband is definitely up for eliminating the loan from my dad next, and I'm more or less in agreement; it's totally the least logical next step, since there's no interest and no minimum payments, but it's got a strong emotional pull. I've paid back $6K in 5 years, so I think my dad knows I'm good for it, but I'd still like to get the rest back to him.

I do miss the rush of getting rid of a smaller debt--I knocked out 7 debts in the past year and a half, but I feel stalled now that I'm working on such a big one (and with layoff and furlough, that one's not going as fast as the others). However, my logical side tells me to either pay off the credit card (AX 3.99%) or the highest-interest student loan (DL at 6.55%) after the CO loan and my dad's loan.

Anyway, I've probably got a year or more to mull it over, but this forum discussion brought the dilemma back to mind for me. Thanks for your input!

[DebbieL]

I highly recommend the bankrate.com site's Debt Paydown Adviser Calculator. You can input up to 9 debts, all their interest rates, etc. It gives you a very good paydown schedule, showing the effects of additional payments, etc. It is a great tool to play around with. Once on the site, look under calculators, debt management, and I think you have to search additional debt management calculators (it doesn't come up on the first list you'll get). It is the debt paydown advisor.

[ceejay74]

Ooh, thanks Debbie! Sounds interesting, I'll check that out.

[moni727]

Generally, is it always smartest to use "extra" cash to pay off credit card debt. I've recently come into some money, not a ton but enough to pay off most, if not all of my credit card debt.

I have other debts: mortgage, car payment, education loan, and American General loan for dental work. But I seem to worry most about the credit card debt; probably about 20K. If I figure correctly, getting rid of the cc debt will make my other monthly expenses much more manageable.

I realize this is a VERY general question but I'm really just trying to figure out if I should take the money and pay off the cards?

Thanks much.

JHVS.

I agree that you should set aside $1,000 of the money you're coming into to have as an emergency fund (if you don't already have one). With that said, by NOT paying off your (im assuming high interest) CC debt, you are losing money each month.

Since you are coming into this money all at once, it would be very wise for you to get out of high-interest CC debt as soon as possible. All the finance charges that 20k accumulates each month is like extra money in your pocket when you pay it off! NOT paying it (when you have the means to) is making you poorer and lose money.

Hope that helps!! Good luck!