Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I'm having trouble figuring out which credit card I should pay off first, and various financial advice columns around the web give conflicting advice, so I'd love to hear what ordinary people with experience in this kind of stuff think:
I'm expecting a tax refund of about $1,750. That, combined with some extra money from my upcoming "three paycheck month" in May, will yield me about $2,300 to play with.
Credit Card A carries a 24.99% interest rate with an outstanding balance of about $3,450.00.
Credit Card B carries a 14.9% interest rate, however, it is still currently in the introductory phase so as of right now, it carries an APR of 0%. The balance on this card is about $1,920.00.
Should I take my expected $2,300 windfall next month and use it to pay off Credit Card B completely, thus eliminating that bill every month altogether, or use all of it to pay down Credit Card A as much as possible while making minimum payments towards B? (I know I'm not supposed to make just minimum payments, but it's all I can afford at this point, I'm stretched thin enough as it is).
Or is there a third option I have not considered yet? Any help or insight would be appreciated. Thanks.
Well...if this were my situation, I would apply as much money toward Card A. 24.99% interest...seriously????
At least by reducing the balance on Card A, you should (theoretically) be able to chisel the rest of the balance down in a shorter amount of time, thus paying less in interest...which is just wasted money.
Wouldn't even think twice about it, I would pay off as much the 3450 as I could as soon as I had the money from your return/extra paycheck. I would also immediately start looking at possibilities of a card with a 0% introductory rate. Don't save any money, don't invest, until you get rid of something you are paying 25% interest on.
If card B was 0% and then shot up to 60% or something, different story. In this case, its not even a question since even after the introductory rate its still lower.
Yeah what you guys are saying was my first instinct, but so many finance experts tout the value of "snowballing" - paying off the smallest balances first, regardless of interest rate, so that at least you can totally eliminate a bill and use that money towards paying off the bigger balances.
Also, there's supposed to be some psychological benefit since the accomplishment of completely paying off one card will help motivate you to pay off the smaller. This is the Dave Ramsey school of thought, but again, I've been debating with myself which method is more effective.
I'm definitely clamping down and not using my cards anymore. One problem I face is that Card A has much more wiggle room on it than Card B. Card A has about $700 left in the credit line, whereas Card B has less than $100. So if something happens, say maybe I need an emergency repair on my car or something, I'd have to charge it to Card A.
Paying card A off makes the most sense financially. But further, call card A and ask for a lower interest rate. if they won't give it to you, threaten to close the account. they'll transfer you to someone who will close the account, but should try to keep you. i wouldn't actually close it, because you don't want to hurt your credit utilization ratio (though it's really not that big of a deal). but 24.99% is robbery.
The dave ramsey way is a 'feel good' approach that maybe some people need, but in reality, is quite silly.
I didn't read all the replies so this may be a repeat.
It depends on when the introductory rate is done. Otherwise, I would look into doing a balance transfer from Card A to Card B (if it's at $0 penalty) and using the tax return to pay it down. That way, you will stop the interest accuring on that one for the remaining balance during that introductory rate. Pay the rest off each month so that you never hit that "after intro rate" phase.
After that, cut up whichever card has the highest interest rate and never, ever use it again unless you're being held in a volcano pit of lava (or have a true emergency).
Yeah what you guys are saying was my first instinct, but so many finance experts tout the value of "snowballing" - paying off the smallest balances first, regardless of interest rate, so that at least you can totally eliminate a bill and use that money towards paying off the bigger balances.
thats stupid.
im glad that nobody gave the wrong answer in this thread.
There are only 2 ways I could advocate the snowball approach
1. If the person really truly needs the warm and fuzzy feeling of getting rid of a debt in order to keep making extra payments. In other words, if the choice is to either pay nothing or pay off the small debts, I'd pay off the small debts.
2. If the person has the choice of paying toward one very large long term debt, like a mortgage, or paying off completely a bunch of small debts, and if the interest rates were not too much different. For example, if you have a mortgage at 5% and a bunch of small student loans at 3-4%, and you have enough to completely pay off the student loans, I could get behind that decision.
Otherwise, always pay the largest interest first.
In your case, if you don't pay off the 25% with every spare penny you find in the street, you've made the wrong decision.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
.
