we now have money and want to pay off ALL bills?

Question

My husband just got a promotion and we now have about $2000 a month to put torwards paying off bills. We have $7000 in credit cards, $6000 on our car, and $16000 on our van. So what is the best way to pay off the bills the fastest but keep our good credit? I was thinking: make two car payments every month torwards each vehicle. and the rest divided among our five credit cards. Then when we have cards paid off put the money every month torwards the car. Pay that off and then work on van??? So what do you think? We are VERY dedicated to paying off the bills. We were young and got credit cards. We will never pick up credit card again. So any advice would help. We want everything paid off before going to buy a house. Thanks for any help!!!

Answer 1

Here are recommendations from a retiree.
1. Pay off the credit card debt as quickly as possible. Keep one for emergencies and things like auto rentals that don't take cash. Pay down the other ones and notify them you no longer want the cards.
2. Build up savings equal to one months salary in case of family emergency or surprise layoff.
3. Work on the car debt. Talk to lender about early payments so you pay less interest.
4. Put a little more of paycheck in tax withholding.
5. If your employer matches 401k deductions, don't miss out on "free money".

Answer 2

Hey Proud, that's awesome...

I always try to advocate a combo approach to these kinds of issues. Before you pay anything off, are either of you saving for retirement? Or for a "rainy day fund" for things that may (translate WILL) come up in the future? If not, put 10% of that extra $2000 ($200 a month) away as savings. Ideally, if either of you has a 401(k) that's the perfect place to start since your company will likely match some or all of that money (we LIKE free money, don't we? lol) Since you want to buy a house, maybe what you do is split the savings -- $100 a month in the 401(k), $100 a month in a money market fund to start saving for the house you want to buy.

With the remaining $1800, I'd concentrate on credit cards with the highest interest and/or monthly payment first. When one gets paid off, take that monthly payment amount and add it to this "surplus" monthly amount. Example: you pay off a credit card that had a monthly payment of $100. Use that extra $100 in the same way as above (now save $210 per month, use the rest for debt reduction). Eventually, your payoffs on the credit cards will get done faster and faster as you use more money to tackle them.

Once the credit cards are done, work on the car and van. Typically, those type of loans have lower interest rates so you're better off getting the credit cards out of the way. By that point you should be able to double or even triple up on the payments with the money you're saving from the card payments. Not only that, you've ALREADY made a start for your house AND future retirement with the money you've saved already.

NOW you can REALLY get serious at this point because you're debt free, all the excess can go into the house fund and the 401(k) (maybe even a Roth IRA as an additional savings for retirement), and best of all, you can sleep better at night :)

Good luck!

Answer 3

The general rule is to pay off the highest interest debt first. Normally that's the credit cards. Pay off the highest interest one first, then move to the next highest. Also look into a short-term loan from a bank/credit union (if the interest rates are better) and pay off all the credit card balances (consolidate) and just repay the bank.
Your goal should be to pay as little interest as possible.
Be careful with the 2 car payments per month - some finance companies require that you mail the extra money to a different address in order for it to be applied to the principal directly. Otherwise that extra money will be applied to a future payment consisting of interest and principal. What you want to do is lower the amount of principal which will reduce the total amount of interest you have to pay.

Credit cards are a wonderful tool, but you have to pay them off completely every month - Paying interest is a waste of money.

In general -
Watch out for any fees or costs associated with setting up a loan.
Make sure there are no prepayment penalties.
Make sure any extra $ is going directly to the principal not interest.

Best of luck.

Answer 4

Usually the credit cards will have a higher interest rate than the vehicle loans. I would just tackle 1 credit card at a time, paying as much extra as you can until they're gone. then use the extra $2000, plus the money that you were paying on the credit cards and pay of the vehicles.

Congrats on the promotion and good luck with the bills. Sound like you're on your way to financial stability.

Answer 5

If I were you, I would make sure to pay the car notes and insurance on time, as usual, then take any extra money you have and put it all toward the credit cards until they're paid off entirely. Then be sure to call the credit card companies and close those accounts or they'll remain open and effect your credit score. It's not a bad idea to keep one of them open for emergency use only. Also, call those companies now and see if they would be willing to let you pay off at a lower amount if you pay all at once. A lot of places will let you do it so they know they'll get their money.

Good luck!

Answer 6

Well, this scenario is incomplete. In order to reap the maximum benefit I need to know what are the interest rates on the debts. Let's assume that the credit cards have the highest rate of interest. Then, those are the debts you want to pay off the fastest. If the car has a real low rate of interest, you might be better off paying it off slower. For example, if you bought a car with a rate of 1.9% which they sometimes advertise, you are better off investing your money than paying off your loan. Also, consider openning a Roth IRA account.

Answer 7

It's actually pretty easy to figure out whatever is your higest interest rate pay the most you can on that first and the minimums on everything else until you get that first item paid off. Once that's done move to the next and just keep that up until your debt free. There is a great calculator that you can plug the numbers in to see how long this will take and give you the exact payments you should make, take a look.

http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp