I am taking out a loan to considate my credit cards. Is it better to pay off those with a higher interest rate first? If so, where does the money go first, to the higher or lowest rates. (for example, if I only pay a portion of a bill). How will this affect my monthly amount due? I'm thinking of paying off the ones with the highest payment (for example, my car loan payment is $250/mo., I owe $1800 on it.). Paying this off completely now would get rid of a big chunk of the outgoing money. I'm just confused!
2007-07-11 08:10:02 · 8 answers · asked by tuckersmom 1 in Business & Finance ➔ Credit
You can not borrow your way out of debt. Do a snowball. List your debts smallest to largest. Pay ALL you can on the smallest and pay minimum on the rest. once you get the smallest paid off step up to the next one and pay minimum plus what you were paying on the one you got rid of. This is building on success. It gives you a mental boost to see the the list get shorter.It is possible to pay off thousands of $ this way. I know I have done it Good luck Do not worry about interest rates at this point Oh Yes the real secret to success is to stop borrowing.
2007-07-11 08:29:42 · answer #1 · answered by al 6 · 0⤊ 0⤋
Pay off items with the highest interest rate first, and make the minimum payments on the rest. As you pay off one, then pick the remaining debt with the highest interest rate and tackle it.
I know it's easy to think "paying off the one with the highest payment or lowest balance first" will free up more cash in the near future for you to apply to the next bill. BUT, your balance is your balance, and the only true "cost" that you have for carrying a balance is the interest. So, that is what you need to be paying off fast - that "cost" of carrying a balance - and that means paying off the one that costs you the most, and that is determined by the interest rate.
2007-07-11 08:14:08 · answer #2 · answered by sortaclarksville 5 · 0⤊ 0⤋
You shouldn't take out a debt consolidation loan under any circumstances. Many of them will rip you off, and none of them will solve the underlying problem of your spending habits. If you have cut up all of your credit cards are using only cash or a debit card, good for you. If not, you should get in the habit of doing that immediately. This is the only way that you will successfully stay out of debt once it's paid off. Changing your behavior towards money is half the battle in getting out and staying out of debt.
As for the way to pay off the debt, the plan that Al gave a few answers ago is the best way to go. Pay the smallest balance first, and minimums on the rest. Once it's paid off, do the same to the next smallest and so on.
Don't worry about interest rates. The amount you would save in paying off the highest interest cards first is negligable. Watching the number of debts fall off as you pay them off is worth much more to your psyche than a few extra dollars in your pocket.
You should visit this website, DaveRamsay.com. He is the smartest guy I ever heard concerning money matters, and it's his views that I just wrote about. He, or one of his helpers, can help you get out and stay out of debt forever.
2007-07-11 14:20:32 · answer #3 · answered by Steve V 3 · 0⤊ 0⤋
I like paying the car off first to free up that big payment and because that's secured debt. Interest rate alone does not necessarily provide the best course of action in prioritizing they order of paying off bills. Other reasons to pay one bill over the other can also be unreasonable...like paying off one company first just cause you hate dealing with their customer service. The trick is to stay committed and not run the loans back up.
2007-07-11 08:20:35 · answer #4 · answered by StephanieS 2 · 0⤊ 0⤋
Definately pay off highest interest rates first. Also when you pay off a bill, use that amount toward the next bill to pay off. So if you pay off something and then have an extra 100 dollars amonth, instead of blowing the money on dinners and stuff keep using that to pay down the balance. You won't notice your budget being any tighter and your debt will go down faster.
2007-07-11 08:19:59 · answer #5 · answered by Kristi J 1 · 0⤊ 0⤋
What makes you think you have a choice? Debt consolidation loans usually require you to list all your debts and, if you qualify for the loan, they will send the money to the creditors, not to you.
The car is a secured debt. If you can get the car loan company to go along with the deal, you can file bankruptcy and keep the car. Think the consolidation lender doesn't know that?
2007-07-11 08:19:38 · answer #6 · answered by thylawyer 7 · 0⤊ 0⤋
it's good to get all of your high interest debts onto one lower interest consolidation loan. where does the money go? you get a new loan with them. they immediately pay off ALL the other ones that you consolidate, there is no hierarchy of higher to lower or anything like that, and then you pay the consolidation loan, that's all. be ready for them to ask for some collateral.
2007-07-11 08:20:28 · answer #7 · answered by KJC 7 · 0⤊ 0⤋
specific...this answer is often specific...a actual sources loan of any form could have a decrease activity fee than even a number of the basically right credit enjoying cards. yet be disciplined and cancel all those enjoying cards whilst they are paid off. initiate paying funds for issues...its a sturdy feeling...
2016-09-29 12:57:36 · answer #8 · answered by ? 4 · 0⤊ 0⤋