paying off debt...?

Question

So here is the deal. my fiance and i have a baby due jan 6th, 2008. we would like to try and pay off as much of our debt before then as we can but we need to decide what order to pay things off in because we are not in agreement as to which one's should go first. What do you think? here is a breakdown of our debt.
The dollar amount is rounded
5 credit cards-
1 with $1400 interest rate is 9.98% wellsfargo
1 with $1800 interest rate is 14.9% capital one
1 with $250 interest rate is 0% for 8 more months capital one
1 with $150 interest rate is 0% for 6 months chase
1 with $1000 interest rate is 0% for 6 months home depot
we also have two car payments one of $414 a month with $18,800 left to pay on it with an interest rate of 13.9% and one of $150 a month with $6,800 left to pay on it with an interest rate of 6.45%

he would like to pay off the third credit card first, then the second, then the first car

I would like to pay off the credit cards with the highest interest rate first

selling the first car is not an option it is a limited edition ford mustang and the other love of my fiance's live besides me I could never ask him to sell it. we already trying refinancing it and he doesn't have good enough credit to do it. also my problem with paying off the lower credit cards first is the fact that they have 0% interest. and we already pay over the min on them and if we put our other credit cards first then they will more than likely all be paid off at the same time. does that make sense?

he makes $600 a week and I make around $300 every two weeks we also have rent of $575 and a electrical bill and water bill and cable and internet bill.

oh yes very silly a washer and dryer, new tires for the car, and a laptop for school oh and gas to get back and forth to work so silly......not

Answer 1

Paying off the highest interest rate items first makes the most sense financially. If the ones with zero interest are going to go to a high rate when that time expires, make sure that they are paid off though before the zero rate expires. They aren't very high balances, so that probably won't be a problem.

So that would mean the 14.9% Capital One credit card first, then the 13.9% car loan, then the other credit cards. Be sure of course to keep up the minimum payments on all accounts.

You aren't really in all that deep at this point. You can get things paid off. Try not to charge any more than you need to. But with a baby coming, there will be lots of additional expenses.

Good luck, and congrats on the baby.

Answer 2

First thing is first. Call each CC and ask for a rate reduction.

Can you move that $1800 @ 14.9% to another card? Look into balance transfer options, dont pay the interest rate if you dont have to.

But, to answer your question, without make changes to what debt is where, this would be my attack plan.

Sell the $18,880 @ 13.9% car and try to get a cheaper car or atleast a better rate at a credit union (www.penfed.org is good)

$1800 @ 14.9%
$1400 @ 9.98%
Make minimum payments on the 0% cards and start saving money in an ING Direct (4.5% savings account) until those balances are due and pay them as much in full as you possibly can.

Hope this helps.

Answer 3

Without knowing how much money you can devote to this, it's a little hard to answer the question, but here's what I would do:

1) Pay off the $1,800 credit card balance with the 14.9% interest rate
2) Make sure all the 0% cards are paid off before the interest rate goes up. Some cards like this will charge retro-active interest if the balance is not paid during the 0% interest period. If any of these cards have that provision, it is essential that they be paid off before that happens.
3) Pay the $1,400 credit card balance with the 9.98% interest rate
4) Then work on the cars.

Good luck!

Answer 4

You are correct. Always pay off your debts with the highest interest rates FIRST.

Any payments that are in addition to the necessary monthly payments on your credit cards should go to the 14.9% card first, then the 9.98%. Any payments you are going to make that are in addition to the required monthly payment on the cars should go to the car with the 13.9% interest rate.

Do not worry about paying more than the minimum amount on the cards with 0% interest right now. Take advantage of the no interest period to pay down your debts that actually have high interest.

As other options you can call the credit card companies to see if you can have your interest rate lowered, or you can do a balance transfer to another credit card with a lower or 0% introductory rate if you can pay it off within the period you will have that rate.
Good luck!

Answer 5

I'm sorry to say, but he's right and here's why : Having debt is a real downside to buy a house much more then the upside of having savings (trust me, I am in the process of buying a house). Without debts, banks will be more willing to give you a big mortgage because in the end, they substract the amount of debt you have of the mortgage or something like that - big downside. Also, unless your money is well placed, you barely make a penny on a 100$ sitting in a bank per month - while with debt, the interest rate as you pointed out can become really high. It is not true that you will have debt all your life and in my experience, you will be much more happy knowing you can live a debt free life - something banks or any other loaner won't ever tell you. Debt are a responsability, sure sometimes it is necessary but the time you can spend without having any is a blessing.

Answer 6

First of all stop using your credit cards.....then go to your bank and get a consolidation loan or (even better ) a revolving line of credit and PAY OFF everything. Then you would just have 1 payment to make each month. Create a budget. Plan your expenses.Open a joint savings account with your fiance and each time either of you get paid, deposit $50 - $100 so that you will have some money built up in savings to use after the baby is born.

Credit cards are a wonderful thing....but you really should only have 1 each. And they should only be used when absolutely necessary.

Answer 7

firstly, it may be unconstructive but all of this debt is pretty silly and you should learn your lesson. I have from my student debts. currently have about £26k to pay off. Now on to the constructive part.

I would consolidate. Get one very low fixed rate interest loan to pay off over about 5-6-7 years, whatever you choose. That's what I'm doing. I have 2x £1600 overdrafts maxed out, a £16k undergraduate loan, and an £8k masters loan. I'm getting a low rate loan of £15k when I finish to pay off the £8k and enable me to setup in a new house for my new job. The issue with you right now is that your interest is crippling you. Paying off one is not that good because all of your others are building up interest as you speak. So, instead of risking going over your 0% rates in to the high rates, and avoid the other various rates you have, consolidate in to one loan, even if the interest is between 7-10%. At least it will still be affordable for you and you are not accumulating interest like there's no tommorow. Oh, and if your credited doesn't let you get a loan from major banking firms, their's ALWAYS a way to get a loan from smaller firms, even if the interest is a little higher. Worst case scenario is that you have to share equity with the bank as insurance of payments.

Hope it helped.

Answer 8

The best thing to do would be to pay off the one with the highest intrest rate first. Be sure you check the 3 at 0% for so many months as to what the intrest rate will be after the time is up. If they will be higher you will want to pay them off first. Besides two of them have really low balances and as soon as they are paid off you can put that money toward one of the other higher amounts. Be sure if you are paying more than the minimum payment that you write two checks and on the extra check in the remark's area write "To be apllied to principle only" that way they can not apply to your next months bill.

Answer 9

Pay off the credit cards and get rid of like 2 out of the 5 there is a such thing as to much revolving credit and it can work against you. Then you both could have two credit cards that you share and one put up for emergencies. Refinance the $19,000.00 auto for a better rate and continue paying the other.

Answer 10

start with the smallest balances first and close those cards then combine those payments with the payments of the higher cards. If you can afford it, pay an extra $50/month on the vehicles. you really only need one credit card and with that one card make sure you don't exceed half of the credit limit at any time.