Pay off credit cards or truck first?

[Diggler]

Re: Pay off credit cards or truck first?

The truck isn't part of the $52k.

There are 10 credit cards (mostly store cards) with APR's of over 20%.

8 of them have balances under $1000. Four of them are under $400.

So the 'snowball' method is going to occur whether I start with high interest or low balances.

The other two >20% cards are $5100 and $3200. Prime candidates for consolidating on another card.

My wife was the spender; I have been frugal. I almost always take leftovers for lunch, only buy what I need, I've trimmed as much as I can out of my every day life to maximize my cash flow.

I haven't figured out any timelines for this. I am simply going to put everything I can, for as long as it takes, into debt reduction. After this first month I should have a decent idea, but I think I can get at least an extra $1k/month towards bills.

[disneysteve]

Re: Pay off credit cards or truck first?

If 8 of 10 cards are under $1,000, and the other 2 are 5K and 3K, that's only 16K or so. What about the rest of the 52K?

I don't normally support getting a new CC, but in your case, it might help a lot if you could qualify for a low interest new card. It would help you get debt free a lot quicker.

[jIM_Ohio]

Re: Pay off credit cards or truck first?

1k/month is 12k a year. This will take 4 years.

adjust this as needed

Bill 1 $400 15% minimum payment $15
Bill 2 $400 15% minimum payment $15
Bill 3 $400 15% minimum payment $15
Bill 4 $400 15% minimum payment $15
Bill 5 $700 15% minimum payment $75
Bill 6 $700 15% minimum payment $75
Bill 7 $700 15% minimum payment $75
Bill 8 $700 15% minimum payment $75
Bill 9 $3200 20% minimum payment $100
Bill 10 $5100 20% minimum payment $100

this is ~10k in total balances, so I know I have guessed wrong by ~40k?

I think the $700 might make sense to target first. Here's why:

you get the $75 each month freed up (or whatever that minimum payment is). Within 4 months, that's $300 extra you freed up (the $75 payment*4 months). This freed up money is the "snow ball".
within a month after the $400 goes away.
4 months later the $400 are done with. You would have $75*4+$15*4 freed up. The snowball is now bigger. Then attack higher rate cards...

It does not make sense to me to put 7 balances of 400-700 one one bill, unless the minimum payments on each of these prevents you from snowballing one bill per month.

For example, if the $1000 you have budgeted can pay off one bill per month and make minimums on others, that makes most sense to me. Don't consolidate in this case.

In another example, if the $1000 budgeted gets the minimums on everything, but would take 4 months to pay off a $400 balance (because minimums are so high), then consolidation is going to put you ahead.

Have you called the CC companies to lower the rate? See if they'll freeze the rate for 12 months while you get situation under control. Any time you can buy to get the low balanced paid off should help you. Most companies will lower their rates to make sure they get money.

If you suggest you will be consolidating to a lower rate, make sure you have a card to consolidate to, and know the banks make money if they keep your balance.

[Diggler]

Re: Pay off credit cards or truck first?

The rest of the $52k is on cards with rates below 20%.

I have an application on my desk at home for a 0% no transfer fee that I'm going to use right away. I'll probably take care of the $700 bill at 29.99% myself right away, and put all I can from the other >20% cards, starting with the highest balance first, in the 0% card and then work my way down the interest rates.

ALL the high interest cards are in my wife's name. The card companies know they have her where they want her and won't work with her at all. She cancelled some of them to freeze rates and they won't even allow her to do online payments 'because there is no account anymore...' B.S... I just set it up through my bank to do online e-payments for free. They're trying to bait her into late payments.

ETA: there are TWENTY cards all together; four of them are zero percent already (two of them are mine... I personally don't have any interest-charging accounts in my name).

ETA II: My job also affords me a bonus every September, it is almost ALWAYS going to be at least $7k after taxes. So that's going to help a lot.

[jIM_Ohio]

Re: Pay off credit cards or truck first?

The rest of the $52k is on cards with rates below 20%.

I have an application on my desk at home for a 0% no transfer fee that I'm going to use right away. I'll probably take care of the $700 bill at 29.99% myself right away, and put all I can from the other >20% cards, starting with the highest balance first, in the 0% card and then work my way down the interest rates.

ALL the high interest cards are in my wife's name. The card companies know they have her where they want her and won't work with her at all. She cancelled some of them to freeze rates and they won't even allow her to do online payments 'because there is no account anymore...' B.S... I just set it up through my bank to do online e-payments for free. They're trying to bait her into late payments.

ETA: there are TWENTY cards all together; four of them are zero percent already (two of them are mine... I personally don't have any interest-charging accounts in my name).

I remember my wife and I having this discussion... I actually took her balances onto my cards before we married because my rates were better than her offers.

Good move with the 0% offer. Highest balances with highest rates first (look at the minimum payments for this info).

best of success to you.

[Aleta]

Re: Pay off credit cards or truck first?

I'm just trying to imagine that you have to sit down and keep track of 20 bills every month. That's time, stamps, keeping up with and not to mention stress. You would have to be careful of how much money that you would put on the lowered or o % cards, because they have an expiraton date. For simplicity alone, I would of course pay off that 700. card with the 29% interest. That's a start. As for the car, you'll have to think that one out because even though youre paying off your credit card; you will be buying another car in the future. Even if you pay the vehicle off, you might want to start up a new account in the future for replacing your car. If you have $1,000 a month to pay towards debt, I would definitely get rid of the 700 like I said and start paying on the ones for under $400. For you, it may just be a piece of mind now to get rid of some of the payments. Meanwhile, you will be paying down your other debt and maybe you could get the ones at 20% on a lower or 0 interest card until you can get some breathing room to see where you will be at that time as things are paid off.
What I would want to know is how much your minimum payments are because that makes a big difference in your decisions as well.

[jIM_Ohio]

Re: Pay off credit cards or truck first?

So if keeping "piles of money" straight" is the issue, then do what you have to to keep them straight.

We have one savings account we use for the 2 car payments (and for legacy reasons our cell phone is also paid from same account).

We added up these 3 payments ($1000/mo). My wife gets paid every two weeks. We put $500 each check into this account. It earns interest before payment is made... and when cars are paid off, this account will still get $500 each paycheck. In the 2 months per year, she gets paid 3X, it also accumulates $$. This grows and grows, and becomes the car pile.

We have a different account for the mortgage, but same general principle... only enough money to pay 2 mortgages and 2 IRAs is put into this account. We actually overbudget IRA's as an emergency fund buffer (meaning we could skip IRA contribution and pocket $900 for an emergency any month). If no emergency after overbudget, then pay down mortgage...

So my comment on car vs CC vs "saving for next car"...

is to solve the immediate problem before the future one. Don't create a savings pile until you have no other debt piles. Pay down all debt (which is costing you 1-23%) before setting aside money for a car which might return you 3-5% in a GOOD year.

You have a 0% teaser rate now (might tease you for 6 months). Max this out with consolidation. In 6 months find another deal and do the same thing. Keep the rate low to suit your purposes... then close the accounts as you see fit once you have zero debt.

[Diggler]

Re: Pay off credit cards or truck first?

My truck is a 2002, and my commute car is a 2001. I am planning on keeping these cars a lot longer.

The multiple payments aren't a big deal, I haven't paid for a stamp for a few years. My credit union has free online bill pay, and most of them are electronic payments... I get paid salary weekly, and keep track of everything in Quicken so I can put in my salary for the next month and see what the cash flow will be weeks in advance... if I need a trip to the grocery store, I can adjust the checking account balance as needed, and keep most of the money in the money market account until the bills are to be paid.

I have decent credit myself, the big cards are all in my wife's name, and I haven't seen many post-intro rates above 15% so I could consolidate a heck of a lot into teaser cards without worry.

[click4credit]

$50k is a big debt - if you own your own house perhaps you could use the equity in your home to borrow $50k at a much lower rate than your credit cards and consolidate all your debt into one place. It also makes things easier to manage and reduced the risk of making a late payment on one of the cards.

If you don't consolidate then you should always pay the highest interest loans first and then move onto the next highest so probably best to let the truck loan run it's course.

[th_tan]

yes, definately use house equity if you can. The rate will be much lower and consolidate your debts. I wouldn't worry about paying off the truck unless its going to save you money if you pay it off with the home equity loan.

[anonymous_saver]

Since it sounds like you would rather go for the financial benefits and not the psychological benefits, I would definitely just put your extra money each month towards your highest interest debt first over the car loan.

I would NOT however, take out a loan on your 401(k) like another poster suggested, it sounds like you make enough money to pay this off in a few years, which is no reason at all to take money out of your 401(k).

Do you have other debt like a school loan or anything? Just want to make sure, so you would consider that in your plan as well.

[anonymous_saver]

By the way, since you have over 20 cards, how many are actually open? I wouldn't normally suggest closing down cards, but I would suggest that you close some of the cards so that you and you wife only have about 6-8 open cards. This would be more managable and having too many cards, doesn't look great to lenders when you are trying to get a new loan.

I congratulate you on trying to get a handle on your finances!

[Ima saver]

I would not get a home equity loan if it was me.