How should we tackle this?
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| Thu, 11-04-2004 - 11:48am |
Anyway, we are in the process of refinancing our mortgage, which will result in a payment that is $400 lower than what we're paying now. Also, after this month's orthodonist's bill, we're all done paying for DS's braces, so we'll have an extra $140 per month. So that's $540 a month that can now go toward paying off debt.
How do we do that, though? I do want to put $100 a month of that into savings (we don't really have anything in savings, except for my 401K), but should I divide the rest equally over the 5 credit cards ($85 extra on each one each month), or should I put big chunks ($400-440) on one card, then when that's paid off, move on the the next one? If we go with that strategy, should we work from biggest balance to smallest, or base it on highest interest rate first, then work on down? OR should we do the smallest balance first so we have the thrill of paying something off quickly to keep us motivated?
I'm open to any and all suggestions.
Thanks.
Elizabeth

If you have several large balances, I'd target the highest interest rate one first. If you have some large balances and a few small balances too, I'd pay the small one's off first, and then when all you have is larger balances, I'd focus on the highest interest rate first. They key is really to make a lot of progress on one debt at a time. It's psychological, it makes you feel like your making progress and it keeps you focused. It also makes sense financially, because paying a little over the minimums on everything you will probably not get anywhere fast and end up paying more interest in the long run.
I have two credit cards, both with around $4,000 on them. One is zero interest rate for now, and then the interest rate pops up to 20%... so I'm targeting that card to get it paid before the interest rate pops up. The other card is around 11.5%, and once the first card is paid I can focus all my extra money on the second one.
Do you have an emergency fund in place? If not, instead of jumping right in on debt, you may want to consider getting one set up, with whatever amount is good for you, like $1000 or so. Because when you start to pay off your cards, the most mysterious thing happens (at least it did to us, LOL)-all of a sudden, there's an emergency and you have to pay for it with the credit card. Which of course will make you want to beat your head against your desk, but that's a whole 'nother story...:D
Anyhow, we are doing the lowest balance to highest balance thing, and surfed what we could over to lower rates to buy time. We're down to 2 credit cards now, but started with something like 4-5. We pay minimums on everything BUT the card with the lowest balance, and throw whatever extra we can to it. When it gets paid off, the normal payment we paid to it got 'rolled over' to the next victim, er, bill in the snowball order. We then threw all we could at it, etc.
Mainly, to me, it's all about looking at the end of the month and seeing the debt total go down, and I like to do things in a semi-orderly fashion. I know if we'd started with the highest APR, I'd have given up because it would have taken too long! Either way, it all needs paid off, so in the end, it only mattered how I felt about it-not what the numbers told me!
Hope this helped some...
~Lisa (whose given name is Elizabeth--only used on 'official' things, and if her mom is yelling at her, LOL)
I wrote down all of our credit card balances last night from smallest to largest balances and figured out how long it would take to pay each one off with the additional money plus snowballing each previous card's payment onto the next one. We're looking at 5 years plus to being debt-free, but at least on paper, it looks doable.
Elizabeth
Elizabeth,
Congrats on writing everything down!
All my best,
Danni