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ImHisMrs
LIF Infant
Member since 11/08 252 total posts
Name:
Mrs. C
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Getting out of Debt...
Have you worked at getting out of debt?
If so, how did you set up your "plan"? I am trying to make us a master type of plan to get these bills paid off - and shouldn't have a hard time getting it done in no time, its just I don't know where to start...
Do we start paying off the smallest bills first? The larger bills first? How did you/would you do it?
Thanks
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Posted 6/22/09 5:09 PM  |
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Christine
2nd verse same as the 1st
Member since 5/05 15287 total posts
Name:
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Re: Getting out of Debt...
Debt snowball is a popular method - you caclulate how much you can pay towards debt on a monthly basis, make minimum payments to all but one creditor. That creditor will get a larger payment so the balance gets paid faster. You should start with the debt that has the highest interest rates and work your way down the line.
There are debt snowball worksheets you do a google search for that will help you sort it out.
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| Posted 6/22/09 5:20 PM |
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BabyBoy
is Skylar Elizabeth
Member since 5/05 4189 total posts
Name:
Tom
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Re: Getting out of Debt...
Pay the lower balance first and not highest interest balance...only pay the higher interest if two balances are similar..
Here is the wiki on it
http://en.wikipedia.org/wiki/Debt-snowball_method
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| Posted 6/22/09 5:33 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: Getting out of Debt...
I would recommend the snowball
I was doing it with smallest balance first
but Amex would like everything I owe them in 12 months - and the payment is extreme (11 more to go!)
so once I pay them off- I will take that money and put it towards the next largest balance- or highest rate
I should be all done in 2 years this way
my situation is also "extreme" - but I used that in my favor - I am paying very little interest on all the money "I" owe
pennies compared to what I should be paying- and I was never late-I just called and explained my hardship and almost all my credit cards dropped the rates
some closed the account at my request- and this has had no effect on my credit so far- I just bought a car- and my score was the same as it always was
so my point is- it's worth a call to see if they will help you by lowering your rate even if you are on time
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| Posted 6/22/09 5:39 PM |
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Christine
2nd verse same as the 1st
Member since 5/05 15287 total posts
Name:
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Re: Getting out of Debt...
Posted by BabyBoy
Pay the lower balance first and not highest interest balance...only pay the higher interest if two balances are similar..
Here is the wiki on it
http://en.wikipedia.org/wiki/Debt-snowball_method
It is more economical to use the method of debt snowball (higher payment for one debt, minimum to the others) to pay off higher interest rate cards first.
If you go strictly by balance, it will cost more to pay all the debt because of the increased interest expense. I played around with calculators for this and there is a definite savings paying down higher interest debt first.
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| Posted 6/22/09 5:55 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: Getting out of Debt...
Posted by ImHisMrs
Do we start paying off the smallest bills first? The larger bills first? How did you/would you do it?
Thanks
Pay off the bills with the highest interest rates first, regardless of how big they are.
That is the mathematically most effective way to eliminate your debt because it means the least amount out of your pocket.
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| Posted 6/22/09 6:47 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: Getting out of Debt...
Posted by BabyBoy
Pay the lower balance first and not highest interest balance...only pay the higher interest if two balances are similar..
That is probably the worst way to look at it.
If you have a $5,000 balance credit card with 10% interest, and a $15,000 balance credit card with 30% interest, why on god's earth would you apply more payments towards the 10%?
That's like giving the credit card companies free money.
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| Posted 6/22/09 6:49 PM |
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LoveyQ
Stalkers, get a life.
Member since 11/07 12820 total posts
Name:
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Re: Getting out of Debt...
I've also been using the Debt Snowball method. We were always good at making payments, but it just seemed like we never made any progress. Once I started using the snowball plan, we have seen such an improvement - we paid off all the cards that we owed "little" to and now just owe balances on two credit cards (albeit the ones that we owe a LOT to, but at least we only have two card payments at this point instead of however many we had).
Most of my major credit cards had similar interest rates. My store cards had ridiculous rates, and those happened to be the ones we owed less to, so we worked in order from the ones with the smallest balances (and highest interest rates) to the ones with the large balances (and lower interest rates).
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| Posted 6/22/09 7:02 PM |
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ImHisMrs
LIF Infant
Member since 11/08 252 total posts
Name:
Mrs. C
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Re: Getting out of Debt...
Thanks so much! I researched this 'snowball' method and it looks pretty good on paper - Thanks! 
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| Posted 6/22/09 7:05 PM |
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MrsB-07
proud RELAXIVIST
Member since 11/07 2027 total posts
Name:
b
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Re: Getting out of Debt...
i paid off all my smallest bills first so they were done and not collecting interest. those were store cards. then i cut them up. next, i took my credit card (i only had one) and transferred all of the balance on a new card that i applied for that offered 0% interest for a year a super low apr after that year was up. and i chipped away at that one card (with no interest adding up) until it was paid off.
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| Posted 6/22/09 7:09 PM |
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JenMarie
One day at a time
Member since 11/07 7397 total posts
Name:
Jennifer
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Re: Getting out of Debt...
Posted by Beth
I would recommend the snowball
I was doing it with smallest balance first
Ditto. Beth gave me the info on this plan and I was able to cut our debt in half last year. Paying the smallest balance worked for us.
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| Posted 6/22/09 7:15 PM |
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rojerono
Happiest.
Member since 8/06 13803 total posts
Name:
Jeannie
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Re: Getting out of Debt...
Posted by ave1024
Posted by BabyBoy
Pay the lower balance first and not highest interest balance...only pay the higher interest if two balances are similar..
That is probably the worst way to look at it.
If you have a $5,000 balance credit card with 10% interest, and a $15,000 balance credit card with 30% interest, why on god's earth would you apply more payments towards the 10%?
That's like giving the credit card companies free money.
Totally true.. but unless there is a HUGE gap in the interest rates and balances the difference won't look quite so dramatic. And there is a benefit to the morale by paying off the little bills.. you see a difference quicker and it makes you more apt to continue.
But me, personally? I do the highest interest first.
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| Posted 6/22/09 7:15 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: Getting out of Debt...
Posted by JenMarie
Posted by Beth
I would recommend the snowball
I was doing it with smallest balance first
Ditto. Beth gave me the info on this plan and I was able to cut our debt in half last year. Paying the smallest balance worked for us.
awesome! 
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| Posted 6/22/09 7:19 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: Getting out of Debt...
Posted by rojerono
Totally true.. but unless there is a HUGE gap in the interest rates and balances the difference won't look quite so dramatic. And there is a benefit to the morale by paying off the little bills.. you see a difference quicker and it makes you more apt to continue.
But me, personally? I do the highest interest first.
Regardless of gap... it pays to pay off the highest interest rates first and I am glad you agree in that fact.
However, I disagree with the fact that you see a difference quicker.
You don't see the difference any quicker because it's taking you LONGER.
Debt should be treated as a TOTAL and not by the amount of cards you have.
What's the point of paying off four $500 balance cards first when you still have that big looming 20k debt card still around? That's supposed to boost morale?
You know what boosts morale even better? Paying the stuff off faster, which equals less money out of your pocket.
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| Posted 6/22/09 7:23 PM |
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BabyBoy
is Skylar Elizabeth
Member since 5/05 4189 total posts
Name:
Tom
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Re: Getting out of Debt...
It really depends on how high your highest balance is...
extra money you attempt to put into something with a high rate, you won't be making a dent in it because after you pay the min, the interest puts the balance right back up.
now if you were to get rid of smaller balances and were able to take that payment and add it to a larger balance owed, you would be making more damage.
obviously, low and zero interest, would be the last too pay as you can see your balance go down.
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| Posted 6/22/09 7:50 PM |
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pinkandblue
Our family is complete, maybe
Member since 9/05 32436 total posts
Name:
Stephanie
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Re: Getting out of Debt...
Posted by ave1024
Posted by rojerono
Totally true.. but unless there is a HUGE gap in the interest rates and balances the difference won't look quite so dramatic. And there is a benefit to the morale by paying off the little bills.. you see a difference quicker and it makes you more apt to continue.
But me, personally? I do the highest interest first.
Regardless of gap... it pays to pay off the highest interest rates first and I am glad you agree in that fact.
However, I disagree with the fact that you see a difference quicker.
You don't see the difference any quicker because it's taking you LONGER.
Debt should be treated as a TOTAL and not by the amount of cards you have.
What's the point of paying off four $500 balance cards first when you still have that big looming 20k debt card still around? That's supposed to boost morale?
You know what boosts morale even better? Paying the stuff off faster, which equals less money out of your pocket.
I think we have had this discussion a few times before. For SOME, it works for THEM to pay off the lower balances first, for others, paying the high interest rates first works better. I say whatever works 
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| Posted 6/22/09 7:55 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: Getting out of Debt...
Posted by Mikismom
[
I think we have had this discussion a few times before. For SOME, it works for THEM to pay off the lower balances first, for others, paying the high interest rates first works better. I say whatever works
if something is working for you- don't stop or change it.....
if it's not broken....
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| Posted 6/22/09 8:00 PM |
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Christine
2nd verse same as the 1st
Member since 5/05 15287 total posts
Name:
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Re: Getting out of Debt...
Posted by BabyBoy
It really depends on how high your highest balance is...
extra money you attempt to put into something with a high rate, you won't be making a dent in it because after you pay the min, the interest puts the balance right back up.
now if you were to get rid of smaller balances and were able to take that payment and add it to a larger balance owed, you would be making more damage.
obviously, low and zero interest, would be the last too pay as you can see your balance go down.
But then you have a higher balance earning more interest. The math really doesn't work in your favor to do it that way.
Of course everyone should do what they want - if there's a psychological benefit to paying off smaller balances at lower interest rates first that's fine but it will take longer and cost more to do that.
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| Posted 6/22/09 8:06 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: Getting out of Debt...
Posted by BabyBoy
now if you were to get rid of smaller balances and were able to take that payment and add it to a larger balance owed, you would be making more damage.
Where are you making "more damage" ??? If you have 'X' amount to pay every month on credit cards, 'X' is not a variable. It's a constant. You are making the same amount of damage.
In fact, you are making LESS damage by paying down lower interest rates first because while the amount you pay per month 'X' is constant, the amount you owe (lets call it 'Y')... is going UP because for that month you are paying more in interest.
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| Posted 6/22/09 8:15 PM |
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rojerono
Happiest.
Member since 8/06 13803 total posts
Name:
Jeannie
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Re: Getting out of Debt...
Posted by ave1024
Posted by rojerono
Totally true.. but unless there is a HUGE gap in the interest rates and balances the difference won't look quite so dramatic. And there is a benefit to the morale by paying off the little bills.. you see a difference quicker and it makes you more apt to continue.
But me, personally? I do the highest interest first.
Regardless of gap... it pays to pay off the highest interest rates first and I am glad you agree in that fact.
However, I disagree with the fact that you see a difference quicker.
You don't see the difference any quicker because it's taking you LONGER.
Debt should be treated as a TOTAL and not by the amount of cards you have.
What's the point of paying off four $500 balance cards first when you still have that big looming 20k debt card still around? That's supposed to boost morale?
You know what boosts morale even better? Paying the stuff off faster, which equals less money out of your pocket.
We are actually in agreement... my point about 'seeing' a difference was not about the 'total' but about the ability to measure small victories. If you pay off 3 balances of $100 each and you have only 1 balance left to pay - it FEELS like a victory compared to paying $300 toward a $5000 balance and still having 4 cards being paid.
Some people NEED those small victories for that onward march.
I tend to measure debt as a total because I budget as a whole..doesn't matter if it's going to 1 creditor or 50. But I can absolutely see the value in at least making your debt APPEAR less ominous by paying off smaller debts and dealing with just one or 2 larger ones.
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| Posted 6/22/09 8:45 PM |
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cjik
Welcome 2010!
Member since 2/06 8879 total posts
Name:
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Re: Getting out of Debt...
I didn't really draw up a plan, but I itemized my expenses for a month (spending normally). After looking over that, I could see where I could cut back. I decided to buy no new clothes (unless it was absolutely necessary) for a year, and I was able to pay off a lot of debt faster. Not for everyone, but it is amazing what you save.
And I agree about paying off small bills first, even if the interest rate is lower. It is so important to feel you have accomplished something while going through this process.
Finally, there is nothing, nothing like the feeling of paying off your debt. So liberating--better than losing weight IMO. So focus on the idea that someday, you won't have debt when it gets tough.
Message edited 6/22/2009 8:50:26 PM.
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| Posted 6/22/09 8:48 PM |
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BabyBoy
is Skylar Elizabeth
Member since 5/05 4189 total posts
Name:
Tom
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Re: Getting out of Debt...
Ave... technically, you are correct. The final truth it all is, it really depends on balance/rate of each of the payee's. You would have to do some calculating to see the difference...The idea behind the "snowball" is to take your min due on cards you have paid off and apply then to the next bill. I personally have more money avaiable sooner then later even though your biggest amount to free up money is the last balance but it may take you so much longer to pay it off... To each their own...
I just personally think the highest balance at the highest rate while paying the minimum amount will not show much gain in reducing the balance.
Both methods work and obviously, people can choose for themselves.
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| Posted 6/22/09 8:59 PM |
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MarathonKnitter
HAPPY
Member since 2/07 17374 total posts
Name:
EMBRACING CHANGE
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Re: Getting out of Debt...
Posted by BabyBoy
Ave... technically, you are correct. The final truth it all is, it really depends on balance/rate of each of the payee's. You would have to do some calculating to see the difference...The idea behind the "snowball" is to take your min due on cards you have paid off and apply then to the next bill. I personally have more money avaiable sooner then later even though your biggest amount to free up money is the last balance but it may take you so much longer to pay it off... To each their own...
I just personally think the highest balance at the highest rate while paying the minimum amount will not show much gain in reducing the balance.
Both methods work and obviously, people can choose for themselves.
ITA
the "kicker" about the snowball working "better" is that many times people who are in a lot of debt need a psychological "WIN" quickly. this helps keep you in the game longer.
knocking out that first debt, regardless of interest rate, helps you FEEL that you're doing something to actually accomplish your goal.
the reason the snowball works is because it helps turn the tides on the emotional aspect of being in debt.
think of the highest interest also being on the highest balance, you'll feel like it will take forever before you'll pay that. it can defeat you before you're out of the gate. where if you knock out a few small bills in the first month, you feel like you're winning.
** i strongly suggest TOTAL MONEY MAKEOVER by dave ramsey. i talk about him/the book/the plan a lot. beth re-introduced me to him last year. it LITERALLY has changed my life in LESS THAN A YEAR.
i've gone from some debt and not knowing where my life was going because of my pending divorce. now, i'm consumer debt free, i'm almost half done with a 6-month emergency fund, i'll be paying cash to finish school, i'll be able to realistically help my son with college, and realilstically put away 15% of income away for retirement without it putting a pinch on my lifestyle.
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| Posted 6/23/09 8:22 AM |
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Christine
2nd verse same as the 1st
Member since 5/05 15287 total posts
Name:
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Re: Getting out of Debt...
Posted by libby2595
think of the highest interest also being on the highest balance, you'll feel like it will take forever before you'll pay that. it can defeat you before you're out of the gate. where if you knock out a few small bills in the first month, you feel like you're winning.
If you can knock out a couple of small bills in a month or two, that's one thing. But it makes NO financial sense to leave higher balances with higher interest rates for last. That is literally giving money away which is counterintutive to paying off debt.
There are spread sheets that you can download that will calculate your total intersest expense based on the order you pay off your debt and there is a difference.
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| Posted 6/23/09 9:23 AM |
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Little-J-Mommy
I'm a Big Brother
Member since 5/06 8041 total posts
Name:
D
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Re: Getting out of Debt...
Posted by ave1024
Posted by ImHisMrs
Do we start paying off the smallest bills first? The larger bills first? How did you/would you do it?
Thanks
Pay off the bills with the highest interest rates first, regardless of how big they are.
That is the mathematically most effective way to eliminate your debt because it means the least amount out of your pocket.
I was doing the debt snowball, paying the smallest card frist and when tax time came around, I shared with my uncle the CPA what I was doing and he flipped out on me. He basically said exactly what Ave is saying....pay the highest interest first, so I've switched how I'm doing it. It's the same amount out of my pocket so far but hopefully it will speed up this process.
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| Posted 6/23/09 9:31 AM |
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