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meganNbobby
Our Family is Complete
Member since 5/05 2774 total posts
Name:
Megan
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debt. what to pay off first
should i do small amaount first or big amounts first?
i remember hearing one is better than the other but i can't remember which one it is
thanks!!
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Posted 1/28/09 2:25 PM  |
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babymakes3
Almost there!
Member since 7/06 7376 total posts
Name:
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Re: debt. what to pay off first
It's up to personal preference..
You'd save more money by paying off higher interest debts first.
however,
You may be more motivated if you pay off smaller debts first.
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| Posted 1/28/09 2:31 PM |
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sj-girl
Happy Family of 4
Member since 5/08 5654 total posts
Name:
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Re: debt. what to pay off first
I was told to pay the one that has the highest interest rate off first
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| Posted 1/28/09 2:31 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: debt. what to pay off first
I prefer the snowball method
I can forward you an email that I explained it pretty well in
you basically pay off the smallest one first - and then use that money for the next one- and so on and so on
snowballing the debt-
it's outlined in Total Money Makeover- which I highly recommend you buying and reading at least 2 or 3 times
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| Posted 1/28/09 2:33 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: debt. what to pay off first
Pay off higher interest debt first, regardless of how much it is.
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| Posted 1/28/09 2:36 PM |
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HeathKernandez
Our Ron is an awesome Ron
Member since 4/07 9091 total posts
Name:
baby fish mouth
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Re: debt. what to pay off first
Pay the minimum on all the higher balances and put any extra money into the smallest balance.
Once THAT balance is paid off, do the same for the smallest balance etc etc.
it really works.
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| Posted 1/28/09 2:37 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: debt. what to pay off first
Posted by KeithHernandez
Pay the minimum on all the higher balances and put any extra money into the smallest balance.
Once THAT balance is paid off, do the same for the smallest balance etc etc.
it really works.
that's the snowball! it really does work
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| Posted 1/28/09 2:38 PM |
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HeathKernandez
Our Ron is an awesome Ron
Member since 4/07 9091 total posts
Name:
baby fish mouth
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Re: debt. what to pay off first
Posted by Beth1210
Posted by KeithHernandez
Pay the minimum on all the higher balances and put any extra money into the smallest balance.
Once THAT balance is paid off, do the same for the smallest balance etc etc.
it really works.
that's the snowball! it really does work
yup. We have a financial advisor come in to talk to the parent's at my son's school about twice a year and he ALWAYS talks about this...
'paying down debt' he calls it.
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| Posted 1/28/09 2:43 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: debt. what to pay off first
I don't understand why people wouldn't pay off the debt with the highest interest rate first.
I can understand the "feel good feeling" about having some smaller debt paid off.
But if you have ten 10% credit cards that have $1000 balances, and you have one with a 29% $2000 balance, you should be paying off the $2000 balance one first.
The numbers don't lie.
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| Posted 1/28/09 2:48 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: debt. what to pay off first
Posted by ave1024
I don't understand why people wouldn't pay off the debt with the highest interest rate first.
I can understand the "feel good feeling" about having some smaller debt paid off.
But if you have ten 10% credit cards that have $1000 balances, and you have one with a 29% $2000 balance, you should be paying off the $2000 balance one first.
The numbers don't lie.
it's about freeing up more $$ to pay off the larger debt quicker
and the motivation to keep going
I have read many books on the subject and they all suggest this
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| Posted 1/28/09 2:59 PM |
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HeathKernandez
Our Ron is an awesome Ron
Member since 4/07 9091 total posts
Name:
baby fish mouth
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Re: debt. what to pay off first
Posted by ave1024
I don't understand why people wouldn't pay off the debt with the highest interest rate first.
I can understand the "feel good feeling" about having some smaller debt paid off.
But if you have ten 10% credit cards that have $1000 balances, and you have one with a 29% $2000 balance, you should be paying off the $2000 balance one first.
The numbers don't lie.
Its about eliminating the balance to free up a lot of $$ quicker to put MORE $$ towards the bigger balance... in the long run it saves you money on interest b/c once you're able to put more $ towards it, it gets paid off quicker. The other way, you're still getting chargees interest on ALL CARDS and it's just a merry go 'round
Message edited 1/28/2009 3:05:46 PM.
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| Posted 1/28/09 3:05 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: debt. what to pay off first
Posted by Beth1210
it's about freeing up more $$ to pay off the larger debt quicker
and the motivation to keep going
I have read many books on the subject and they all suggest this
Motivation yes. Freeing up debt faster, no.
They may all suggest it, but mathematically it doesn't make sense to let higher interest rate balances sit around.
Do the math:
You have three credit cards. Two with $1000 balance (10% interest) and one with a $3000 (30% interest) balance.
You have $200 of available funds a month to put towards debt.
Do it your way: First month you pay $200 off the $1000 card.
Your balances after 1 month are now:
$800 -> $806.66 (after month's interest)
$1000 -> $1010
$3000 -> $3075
Total: $4891.66
Do it my way: First month you pay $200 off the $3000 card.
$1000 -> $1010
$1000 -> $1010
$2800 -> $2870
Total: $4890.00
Already you just saved $1.66.
I don't see where this "extra" money is coming from just because you pay prior debt.
Just because books suggest it, doesn't make it mathematically right. It might be "mentally" better. But not mathematically.
Unless somebody wants to crunch the numbers and prove me otherwise. I am open to suggestions. 
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| Posted 1/28/09 3:18 PM |
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HeathKernandez
Our Ron is an awesome Ron
Member since 4/07 9091 total posts
Name:
baby fish mouth
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Re: debt. what to pay off first
Posted by ave1024
Posted by Beth1210
it's about freeing up more $$ to pay off the larger debt quicker
and the motivation to keep going
I have read many books on the subject and they all suggest this
Motivation yes. Freeing up debt faster, no.
They may all suggest it, but mathematically it doesn't make sense to let higher interest rate balances sit around.
Do the math:
You have three credit cards. Two with $1000 balance (10% interest) and one with a $3000 (30% interest) balance.
You have $200 of available funds a month to put towards debt.
Do it your way: First month you pay $200 off the $1000 card.
Your balances after 1 month are now:
$800 -> $806.66 (after month's interest)
$1000 -> $1010
$3000 -> $3075
Total: $4891.66
Do it my way: First month you pay $200 off the $3000 card.
$1000 -> $1010
$1000 -> $1010
$2800 -> $2870
Total: $4890.00
Already you just saved $1.66.
I don't see where this "extra" money is coming from just because you pay prior debt.
Just because books suggest it, doesn't make it mathematically right. It might be "mentally" better. But not mathematically.
Unless somebody wants to crunch the numbers and prove me otherwise. I am open to suggestions.
rock on with your numbers..
I always found paying off the smaller balances worked for me better.. and I didn't read no stinking book.
ETA: If a person is getting charged 30% interest on a higher balance CC, I would hope they would transfer balance to a lower interest.. at least, if *I* had a gap that large btwn my debts, I would...
Message edited 1/28/2009 3:25:36 PM.
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| Posted 1/28/09 3:23 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: debt. what to pay off first
Posted by KeithHernandez
rock on with your numbers..
I always found paying off the smaller balances worked for me better.. and I didn't read no stinking book.
Hey like I said... it may make people "feel better" to knock off and be able to shred a couple of credit cards quickly. I am not denying that if that makes somebody in debt feel better, they should do that.
But the "fastest" way to pay off debt is to pay the balances with the higher interest rates off first. It's common sense. Interest that compounds monthly adds to your total debt. The whole point is eliminating the debt. Not letting the banks add to it.
And yeah I hope they transfer off that 30% interest debt too. But some people may not have that opportunity if they owe so much debt they need to decide which one of my 10 credit cards I should pay off first.
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| Posted 1/28/09 3:29 PM |
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HeathKernandez
Our Ron is an awesome Ron
Member since 4/07 9091 total posts
Name:
baby fish mouth
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Re: debt. what to pay off first
Posted by ave1024
Posted by KeithHernandez
rock on with your numbers..
I always found paying off the smaller balances worked for me better.. and I didn't read no stinking book.
Hey like I said... it may make people "feel better" to knock off and be able to shred a couple of credit cards quickly. I am not denying that if that makes somebody in debt feel better, they should do that.
But the "fastest" way to pay off debt is to pay the balances with the higher interest rates off first. It's common sense. Interest that compounds monthly adds to your total debt. The whole point is eliminating the debt. Not letting the banks add to it.
And yeah I hope they transfer off that 30% interest debt too. But some people may not have that opportunity if they owe so much debt they need to decide which one of my 10 credit cards I should pay off first.
I think that was Beth's point.. Sometimes, *feeling better* motivates a person to be disciplined with paying down their debt.. therefore it works better.
I'm just speaking from experience. Until I used this way, I was in a merry go round with my CCs... the proof is in the pudding. The OP asked which is better. From MY experience, this way was better.
In most cases, there may be no huge gap btwn the interest rates
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| Posted 1/28/09 3:35 PM |
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MeNBobs
*****
Member since 4/07 3765 total posts
Name:
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Re: debt. what to pay off first
I just saw Suze Orman on Oprah talking about this. If Oprah had it on her show it must be right.
This lady had 22 credit cards  .
Suze put them in order from highest to lowest interest rate. She said for the lady to try to pay at least double the minimum on her high interest card (if $20 is the minimum pay $40) then to pay the minimum on all the other cards. After card A was paid off take the $40 you were paying for card A and combine that with the minimum (let's say $20) you are paying for card B so now you will be paying $60 for card B. Continue until all 22 are paid off.
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| Posted 1/28/09 3:39 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: debt. what to pay off first
Posted by MeNBobs
I just saw Suze Orman on Oprah talking about this. If Oprah had it on her show it must be right.
This lady had 22 credit cards .
Suze put them in order from highest to lowest interest rate. She said for the lady to try to pay at least double the minimum on her high interest card (if $20 is the minimum pay $40) then to pay the minimum on all the other cards. After card A was paid off take the $40 you were paying for card A and combine that with the minimum (let's say $20) you are paying for card B so now you will be paying $60 for card B. Continue until all 22 are paid off.
that's a snowball plan as well- I just prefer to do that smallest the largest
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| Posted 1/28/09 3:45 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: debt. what to pay off first
Posted by MeNBobs
Suze put them in order from highest to lowest interest rate. She said for the lady to try to pay at least double the minimum on her high interest card (if $20 is the minimum pay $40) then to pay the minimum on all the other cards. After card A was paid off take the $40 you were paying for card A and combine that with the minimum (let's say $20) you are paying for card B so now you will be paying $60 for card B. Continue until all 22 are paid off.
You still are not going to get the money paid off quicker this way. Taking the money from card 'A' to put towards card 'B' doesn't accomplish this. Because while you are making your minimum payments, you are still paying down debt.
People need to treat debt as a big total and not individual balances. Then you would see that paying off lower smaller balances doesn't pay it off any faster.
The only advantage is mental.
And even if the interest rates were the same, I STILL wouldn't pay down the smallest balance first.
I would pay down the balance that was closest to the credit line because that improves your credit scores quicker and reduces the chance of banks taking adverse action against you (like closing cards and reducing lines).
So if you have a $1000 balance on a $10000 limit card, and a $2000 balance on a $2300 limit card, I am paying down the $2000 balance first there as well.
And while I don't mean this personally to anyone here... I find Dave and Suzie's "suggestions" to be fine for the average person that really isn't that informed. When you break it down further, there are usually much better ways of doing things.
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| Posted 1/28/09 3:50 PM |
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babymakes3
Almost there!
Member since 7/06 7376 total posts
Name:
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Re: debt. what to pay off first
Paying off your smaller debts first might be better for your credit too.
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| Posted 1/28/09 3:51 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: debt. what to pay off first
Posted by babymakes3
Paying off your smaller debts first might be better for your credit too.
Actually having balances that are near your credit lines is actually far worse and what can trigger adverse action by banks. See my previous post.
So if all interest rates are even, pay down the balances that are closest to your credit lines (percentage wise) first.
If you have fat limits on all of them (under 20% debt to credit limit ratio), then it doesn't matter much. I would then just pay the smallest one off first for a mental boost.
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| Posted 1/28/09 3:56 PM |
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IrishLasss334
I'll be there soon!
Member since 1/08 6549 total posts
Name:
Patty
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Re: debt. what to pay off first
Posted by Beth1210
I prefer the snowball method
I can forward you an email that I explained it pretty well in
you basically pay off the smallest one first - and then use that money for the next one- and so on and so on
snowballing the debt-
it's outlined in Total Money Makeover- which I highly recommend you buying and reading at least 2 or 3 times
i agree, Total Money Makeover is awesome.
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| Posted 1/28/09 4:10 PM |
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MikesCutie
May 26, 2007
Member since 12/07 1478 total posts
Name:
Marianne
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Re: debt. what to pay off first
Posted by SJ-GIRL
I was told to pay the one that has the highest interest rate off first
I agree.
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| Posted 1/28/09 4:33 PM |
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Re: debt. what to pay off first
I would suggest consolidating all your cards and transfer to a 0% balance for 6months or a year , whatever you can get, ....ive done this several times and before anyone asks...my credit score is near 800 so no it does not affect your credit.
If this is not possible i would suggest paying off highest 1st. No need to be paying 30% interest rates. In fact, there is no need to have those cc in your wallet at all. Mentally you will be better off knowing u are not throwing 30% EXTRA to a company for NOTHING.
Sometimes all it takes is a simple phone call to the company and ask "im calling to see if i can lower my interest rate" ive done it, and it works! At this point everyone is hurting and more willing to negotiate. Good luck !
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| Posted 1/28/09 4:38 PM |
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Alli06
Baby #3 coming this June
Member since 8/05 6721 total posts
Name:
A
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Re: debt. what to pay off first
Posted by MeNBobs
I just saw Suze Orman on Oprah talking about this. If Oprah had it on her show it must be right.
This lady had 22 credit cards .
Suze put them in order from highest to lowest interest rate. She said for the lady to try to pay at least double the minimum on her high interest card (if $20 is the minimum pay $40) then to pay the minimum on all the other cards. After card A was paid off take the $40 you were paying for card A and combine that with the minimum (let's say $20) you are paying for card B so now you will be paying $60 for card B. Continue until all 22 are paid off.
This is what I was going to write!! I think this is a great way.
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| Posted 1/28/09 4:40 PM |
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charon54
My two boys!
Member since 5/05 7279 total posts
Name:
Rebecca
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Re: debt. what to pay off first
It's personal preference. But I always pay off the higher interest loans first. I don't need the motivation to pay off my debt and I don't see the point in paying extra interest.
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| Posted 1/28/09 4:58 PM |
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