What order should I use to pay off debt?

iVillage Member
Registered: 09-01-2008
What order should I use to pay off debt?
6
Sun, 11-02-2008 - 10:56am
Okay........I need some advice. I've read the "free part" of the TMMO website. I can't post but I can read a summary of Dave Ramsey's baby steps and I'm trying to decide in what order to pay off my debt. I like some of what he says but I don't think that I'm a true Ramsey-ite. Right now, this is the order that I think I'm going to pay off my debt. I've already knocked off a good bit of credit card debt. I have rolled the CC debt onto short term low interest promotional offers so they will come first.

1) Credit Cards ($7500 Balance)
2) 1st mortgage ($31,000 Balance @6%) In my name only
3) Personal loan ($25,000 Balance @ 8%) In my name only
4) 2nd mortgage ($36,000 Balance @ 5% but variable) In both mine and hubby's names

I'm iffy on moving up the 2nd mortgage since it is variable and is the lowest interest rate at this time. If interest rates start going up, I can always move it up. I also can't help but think about the fact that I am the one doing the snowball so I want the balances in my name only gone first. I have about $1,500 each month to throw at the debt after minimum payments. Tell me what you all think!! Be brutally honest.
iVillage Member
Registered: 04-12-2007
Sun, 11-02-2008 - 12:24pm

I don't think it's at all unusual to want to implement just part of what one of the "experts" say.

iVillage Member
Registered: 11-17-2007
Sun, 11-02-2008 - 2:47pm

I agree with Robyn do the credit cards YOu want the credit paid before the time is out and the interest rises.


Then it doesn' make

iVillage Member
Registered: 01-23-2007
Sun, 11-02-2008 - 2:53pm

I agree with both Robyn and Maryann. Is there only one credit card?


Dee


iVillage Member
Registered: 09-01-2008
Sun, 11-02-2008 - 6:25pm

There are actually two credit cards. One has a 1.9% interest rate so I'm paying it first. The other is 0% and it looks like with the way things are going, I should have them both paid off by the time the promotional period ends. I was just wondering if the HELOC should come after the CCs because the rate is variable and who knows how long interest rates will stay this low? Thanks to all of you who offered advice. If anyone else wants to chime in, please do. I can use all of the help that I can get.

Kim

iVillage Member
Registered: 01-25-2006
Sun, 11-02-2008 - 9:42pm

I would also swap the personal loan into position #2. Unsecured debt generally goes before secured debt. You are likely getting tax benefit from the mortgages so get rid of the personal loan first.

As far as the first vs. 2nd mortgage, it probably ultimately doesn't matter. I'd normally suggest the 2nd first just because of interest rate stuff. Are you trying to rebuild credit or are you just expressing concern because DH isn't contributing to the snowball? If there are marital difficulties driving that, you might want to think 2x about putting extra on the mortgages at all depending on your state. If you live in a joint property state, he's going to have rights to 1/2 the marital assets so all you are doing is building more asset (in the form of home equity) for you to have to split or buy him out of. You might be better off figuring out a way to tuck the money away in a more liquid way.

Peg

iVillage Member
Registered: 07-12-2008
Fri, 11-14-2008 - 1:14am

You pay off your debt based on the interest rates because you will ALWAYS pay the lowest amount of interest.

 

Steve