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Paying off debt

post #1 of 23
Thread Starter 
I have a situation I have been struggling with.
DH has two large bills. We want to pay them off but it's taking forever.
One is a credit card with 0% for half the balance. The bill is $200 a month.
The other is a loan that is half the debt of the CC but also $200 a month.

1)Should we pay off the loan and save $200 until we can pay the CC in full?
2)Pay off the loan and put the extra $200 to the CC each month?
3)Continue saving until we can pay the CC off first(about 5 more months) then the loan since it's a scheduled payment?
4) Other...explain
post #2 of 23
I vote for number 2 because if you pay off the loan early then you'll save on the interest and then putting the extra $200 on the CC will also save you on interest charges, and interest is what'll kill ya
post #3 of 23
Thread Starter 
I forgot to mention that DH and I have opposite views which is why I started the poll. Also the CC we are paying off we are no longer using.
post #4 of 23
I like number 2 but also look at the intrest rate that both have, I would put more against the one with the higher interest rate. Just so your not paying through the teeth just to keep your head above water.
post #5 of 23
If you can afford to pay off the loan, then do it! Put that money toward paying off the credit card. If you get rid of the loan, that's interest payments you're saving, and you'll pay your credit card off faster.
post #6 of 23
Number 2 would also be my choice, at least both debts are decreasing at the same rate and it looks better on your credit ratings...
post #7 of 23
Choice 2 sounds the best to me! Also, you should find out if there is a penalty for paying early on the loan.
post #8 of 23
I chose other, but I think I misread #2.

Anyhoo, if you can afford to pay off one of the 2 loans do it. Pay off the one that is charging you the higher interested rate (i.e. your loan) first. Whether this is paying all at one or placing more cash towards that loan than the credit card.

You have 0% financing on the credit card and you still need to keep paying something towards it, whether its the minimum or $200. So option #1 is definitely out since it makes your FICO score look horrible.

I've recently taken to watching that Suze Orman Show on CNBC Saturdays at 9pm. She puts many financial answers into laymans terms.
post #9 of 23
DH and I paid off the last of our big debts last year and we did that by focusing on the highest interest things first. For us that was basically credit card debt. We paid the minimum on all the other cards, and put everything we could on the highest interest one.
post #10 of 23
Always pay yourself first, then all your debts! Pay off the one that has the higher interest rate first and then the other. Putting away that $200 each month won't help until you get rid of the debt because the interest will just add up and that's extra cash you could have had.
post #11 of 23
I vote for number 3 - I always think Credit cards should be paid off first..the interest rate is so high!
post #12 of 23
I don't know the interest rates involved, but I'd focus on whatever the higher rate is (I assume it's the CC). If they're close in rates, I'd pay the loan and put the money saved from those payments toward paying down the credit card, but if the CC is a bunch higher rate, I'd make the monthly payments as high as you can and pay it down as fast as you can and keep making the scheduled payments on the loan.

post #13 of 23
2 sounds the best... My husband and I have several things we are paying on, too - we always work on the little ones first and pay what we can on the others.
post #14 of 23
Thread Starter 
Thanks you guys gave me a lot to think about.
Half of the balance on the CC (new purchases) is the same rate at the loan. So the rate wouldn't come into effect with the choice.
post #15 of 23
Is the interest on the loan tax deductible?? If yes I would be paying the CC balance off 1st.
post #16 of 23
Pay off your higher APR before you pay off your lower APR. Also, take your credit card, put it in a bowl of water, and put it in the freezer. If you want to buy anything you'll have to wait for the ice to melt. (You can't use your microwave it will melt the plastic, found that one out the hard way)
post #17 of 23
I voted for #2
post #18 of 23
I'd pay off the loan first. We always try to pay ours off as quick as possible (we paid a 5-year loan in 6 months and another in a year) because the interest racks up quick!
post #19 of 23
Thread Starter 
So decided to do option 3)Continue saving until we can pay the CC off first(about 5 more months) then the loan since it's a scheduled payment?

If we paid the loan off with what we have it would take 3 years to pay the CC off. With option 3) we can have the CC paid off in 5-6 months and the loan in 30 months (on schedule).

I asked a family member for their opinion. I sent them exactly what I posted here and now they want to gift us the $ to pay off the debt. I feel so bad. I know they are really good with money and just wanted an opinion.
post #20 of 23
I think I skimmed this thread rather than reading it... it's still first thing in the morning for me on a Saturday =]

But I think you should consider whether they're fixed or variable interest rates. I work at a bank and we get a lot of people calling up to cancel their credit cards and figure out a payment plan for them that saves them a bit... Pay off the variable rates first, because you never know when theyre going to change (I'm assuming thats the CC) and pay off the loan gradually.
I would also double check that there's no payout penalty on the loan or credit card (banks put this in to trick you a lot... you think you're paying it off then they charge you $250 because you paid it early). Banks might work differently over there, I'm not sure, but that's what I think would be a smart option.

I hope I didn't skim this thread too much and that that was relevant...

Oh I think we posted at the same time (or I didn't read your last post)
I think that borrowing money from family is generally a bad idea.
You would really have to be sure you knew that it was going to work out, and work out a payment plan for them that you could really stick to. Have it in writing too. That sounds silly, but money and family can get messy... If you treat it like a business proposal though, rather than a favour, maybe it could work...
post #21 of 23
Dave Ramsey's Financial Peace course says to pay off the smaller debt first and pay the minimum on the other credit cards. When the one card is done, then apply that money to the next credit card. Its called snowballing.

If you get rid of the smaller one first is does two things (1) gives you a sense of accomplishment and (2) helps you apply that money to the next.

When you try and tackle the bigger one first, it seems like a really hard uphill climb and you'll never get it paid.
post #22 of 23
I'm not sure I understood exactly which one had the highest interest rate, but that's the one you should be paying off first! Then it would take no time at all to pay the other one off!
post #23 of 23
Credit card companies have strange rules (I did credit for 10 years). For the CC, find out where you payment is applied to. If it's towards the 0% portion of the loan first, then pay off the other loan first. If you are paying towards the interest portion of that CC, then find out which has the higher interest rate and pay that off first. I hope that made sense.
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