Post # 1
Another topic about debt over weddings made me think I should ask some advice of the bee.
As we have saved for our wedding, we realized our spending habits really suck. We burn money. We are impulse shoppers, and neither of us are savers. So, reform is taking place slowly and wedding budgeting has been a big help.
My question. I carry the debt in our household as Fiance went bankrupt post divorce. Granted, about 60% of said debt is mine that I brought into our relationship due to irresponsible spending and living beyond my means, travelling overseas for a year, and some bad decisions…
So, what should we pay off first, what would benefit us more longterm? I currently have 2 credit cards, pretty close to maxed at $4000 each. I also have a personal loan at $32,000. The loan payments monthly are $800. IF we continue the way we did for the wedding, we shoul dbe able to clear all the debt within 2 years. SO whats best to pay off? The loan or the credit cards?
My thought is the loan, because then I can pay an addition $400 a month onto my C/Cs every month, plus the additional we have been setting aside for the wedding, which is about $600 a month. So at say $800 or so a month each on the cards, wouldn’t take us long to pay them off and almost debt free!
Fiance feels the credit cards first because of the higher interest rates I pay- 19% vs 8.5%, then focus on the loan.
What would you do?
Post # 3
Definitely the cards with the higher interest rates.
Post # 4
I’m no expert, but I think I’d tackle the higher interest rate first because that rate costs you more money the longer it takes to pay back the loan.
Post # 5
I’m with your Fiance – the credit cards have a much higher interest rate, so you’ll be saving more money in the long run by paying down the credit cards first, then the loan.
Post # 6
Snow ball it !!
Start with the smallest and aggressively pay it off then the next biggest. Your debt dissapear before your eyes. Also the CC’s because of the interest and the effect on your credit!
Post # 7
Credit Cards, if the rate is significantly higher on one card then that one first.
Post # 8
I agree that CCs first because they are smaller and have higher interest rates. Just roll the payments from them to the next debt once it’s paid off.
Post # 9
Whatever has the highest interest rate, which I’m betting is the credit cards (speaking from experience). The interest really adds up and you’ll save youself money in the long run.
Post # 10
I agree with all the previous posters. Take your highest interest loan and pay as much as possible. Pay the minimum payment on the rest. When you finish with the highest interest card take the money you were used to paying on the first card and add it to the next highest interest. Repeat until you’re down to nothing.
Other side note advice might be to see if you can transfer the cc debt to a lower interest card or otherwise consolidate it. Or call your cc to see if you cannegotiate a better interest rate.
Post # 11
Great advice, thanks all! Both cards are the same interest rates, and I will be cancelling the Visa as soon as it’s paid off so I guess paying it first woul dmake the most sense? I get air miles with my mastercard, plus I don’t pay a yearly fee at all with it so it;s a better card to keep long term. I think I am pushing for the loan to be gone becasue I’ve had it for so long, I just keep refinancing it to get better interest rates or to consolidate more debt (yep, stupid immature spending habits) and it’s the biggest payment.
I guess once again Fiance was right lol, though I won’t openly admit that to him! PLus it makes more sense now that I’ve posted it here in writing.
Post # 12
I wouldn’t close the Visa when it’s paid off if it doesn’t charge an annual fee. Since you are carrying debt on the other one, that will throw your debt to credit limit ratio way out of wack and will mess you up if you want to apply for a mortgage or something later. If it doesn’t charge a fee, just cut it up and don’t use it anymore but leave it open.
Post # 13
Again I agree with PP’s about highest interest first, but in response to your last comment about cancelling your Visa as soon as it’s paid off, from a credit standpoint, don’t! Number of open/closed accounts factors into your credit score and it also looks good if you have the option of using the credit but are able to not rack up debt. I’m not explaining this very well…
Post # 14
@Eva Peron: What she said! This is Dave Ramsey’s approach…if you haven’t heard of him, you should check it out!
Post # 15
@LoveMySailor1018: OP may want to double check that on her own. Canadian credit scores are calculated slightlydifferently in that your “available credit” such as in open credi card with a say $10,000 max can actually harm your future applications more than closing a card, since youre seen as more of a risk since technIcally you could get a huge mortgage you’re barely able to afford, and then go max out that cc on top.
Post # 16
@Eva Peron: I’m with you on that! I “snowballed” my debts and only have one left to pay off! Wahoo! My Fiance is currently using this method as well and it’s working very well for him. Once we combine our finances, I’m assuming we’ll continue paying off the debt we have this way.