Advice on what to pay off first.

[porkpistol]

Hey all I am new here. This is my first post. I have been browsing the boards for months now. I have a question about paying off debt that my wife and I have. I would like to know what you think is a better option. We will be receiving a $5,022 refund for our taxes this year and I would like to put every bit of it towards debt. Our goal to begin with was to pay off the personal loan listed below to have more overhead every month. We have a new baby and my wife would like to go to part time to be home with her. The extra money would be handy. The credit card debt won't give us as much back in our pockets each month but it will be 6 payments off our shoulders, and I can always pay the personal loan off early next year with our taxes again. The balance will be very very low by Feb. next year. What advice do you all have for us?

A. We have a personal loan that will be payed off April 28 2015. The monthly payment is $337.41.

B. We have a lot of credit card debt, that honestly we are tired of having. Juggling all the payments every month gets real old. I could pay off 6 credit cards totaling $5,066.07 (current balances before we receive our refund), with minimum payments totaling $229.84 per month.

Thanks for any responses!

[disneysteve]

Welcome. Can you post a list of the debts with the balance on each and the interest rate? We really need that to answer your question.

[porkpistol]

Welcome. Can you post a list of the debts with the balance on each and the interest rate? We really need that to answer your question.

CC 1 - Bal $947.75 APR 26.99
CC 2 - Bal $1977.05 APR 22.99
CC 3 - Bal $1023.62 APR 13.90
CC 4 - Bal $572.13 APR 13.90
CC 5 - Bal $392.62 APR 20.24
CC 6 - Bal $190.90 APR 25.99

Personal Loan - Bal $4694.31 APR 13.00

Also a little more information we had some home catastrophes these last few months. Had to buy a new furnace and water heater. My transmission went out in my car. Our savings has dwindled down to $700. Paying off the personal loan would allow me to put roughly $300 back into savings instantly, the CC debt obviously would not.

[LivingAlmostLarge]

Pay off the credit cards. The interest rates are much higher and it'll be easier to manage without 6 payments. Then you can focus on the personal loan.

[porkpistol]

Pay off the credit cards. The interest rates are much higher and it'll be easier to manage without 6 payments. Then you can focus on the personal loan.

I was thinking the same thing, my wife seems to think the higher balance of the personal loan would be a better option as that will put more money in our pocket every month since she is going to go to part time.

[disneysteve]

Yes, paying the personal loan will free up more cash flow but it will cost you more in the long run which really needs to be your focus. If the budget is so tight that you can't handle the payments on your income alone, then you guys really need to reconsider her going PT until the debt is paid off.

[porkpistol]

Yes, paying the personal loan will free up more cash flow but it will cost you more in the long run which really needs to be your focus. If the budget is so tight that you can't handle the payments on your income alone, then you guys really need to reconsider her going PT until the debt is paid off.

No, we can handle the payments with her dropping to part time. I have already worked all that out ahead of time. She was dropping even if we didn't pay off any of this debt with the refund. So I guess any of it would be more overhead, but the credit cards would be the way to go. And your saying the CC's will cost more in the long run right, not the personal loan?

[disneysteve]

And your saying the CC's will cost more in the long run right, not the personal loan?

Yes. the higher the interest rate, the more it is costing you to keep that debt, regardless of which has the higher balance. Think of it on a cost per dollar basis. Every dollar of CC debt at 26.99% is costing you $0.27 while ever dollar of personal loan is only costing you $0.13.

[porkpistol]

Yes. the higher the interest rate, the more it is costing you to keep that debt, regardless of which has the higher balance. Think of it on a cost per dollar basis. Every dollar of CC debt at 26.99% is costing you $0.27 while ever dollar of personal loan is only costing you $0.13.

Thank you for the advice. I'm excited to get rid of this CC debt. Juggling so many payments a month is so difficult.

[sandrark]

And the other thing you can do to help your monthly cashflow is to re-assess your withholding.

If you do a good job at that, it could add in enough monthly to also cover the personal loan, which will make day-to-day income balance better against commitments. ($5200 refund is about equal to $430 per month in additional funds in your pocket monthly - if you got the withholding more properly estimated.

You won't have a big refund next year, but by this time next year, all of it could be paid off, AND you'll have $400+ per month in income.

[snafu]

One more voice shouting pay off credit cards! Those interest rates are horrific! Nearly 27%, 26%, 23%, yikes. That's a huge cost when a savings account is paying less than 1%. I suggest you look at the last few CC statements and add up just the interest charges on those 6 cards.

2nd, like sandrark suggests, get withholding changed. You're giving the government a big, interest free loan. They'd never do that for you!

[Pari77]

High interest

Personally I would pay off or make a large payment to the debt(s) that have the highest interest.

Pari

[creditcardfree]

You are getting great advice so far. You might check out a website called What's the Cost, that helps you figure out how to snowball your debt payoff. It might help you juggle your debt.

[porkpistol]

And the other thing you can do to help your monthly cashflow is to re-assess your withholding.

If you do a good job at that, it could add in enough monthly to also cover the personal loan, which will make day-to-day income balance better against commitments. ($5200 refund is about equal to $430 per month in additional funds in your pocket monthly - if you got the withholding more properly estimated.

You won't have a big refund next year, but by this time next year, all of it could be paid off, AND you'll have $400+ per month in income.

How do you know how to adjust your withholding? I don't want to end up owing the government money at the end of the year by not having enough taken out each check?

[porkpistol]

Nevermind, I guess we just each fill out a new w4. Yeah that monthly income back in tax payments would be nice. I will have to look into that. Thank you for the advice.