Advice on tackling debt?

[Anonymous]

Hey guys! This is my first post here and I could really use some advice on how to handle my current debt situation.

Long story short, over a year ago I got serious about building up my credit because my husband and I's goal is to own our own house. He lost a job back in 2013 and his credit tanked because of it so I've worked very hard to build my own credit while helping his as much as I can. His has been a very slow process because of the collections on his file after losing his job, however I have none so it was easy to get credit cards and get my score up. This past year has been rough financially so now I'm in about 18k of debt spread around between my cards.

Paypal: 4,988
Wal mart: 3,000

Marvel: 4,200
JC Penney: 1,200
Amazon: 1,900
Target: 1,100
Credit one: 670
Merrick: 670

It's stressful to say the least, but with tax season here our refund should be close to 9,000 like it has been the past few years and that's going entirely to the debt. I hate that there will still be so much leftover but I plan on budgeting like hell over the next year and paying off what I can before hopefully being able to pay the rest off next year. I guess my main question is, what would be the best course of action with the refund? Should I pay off all of the smaller balances first and then what I can with the higher balances? The monthly payments are frustrating as there as so many and I want as few as possible, but my interest rates on my Paypal and Walmart cards are high so the monthly payments don't make much of a dent. :/

[damnedanddetermined]

I personally would pay off the ones with the "highest monthly payment", and some with small balances. Then put those monthly payments towards other small balances, and keep it going til the very last is paid off. But I got to ask....how on Gods green earth, do you get 9K back in youre refund check?

[Anonymous]

I was thinking about that which would be Paypal, Walmart, and Marvel and I would only be able to pay two of those anyway, but I hate that it would still leave so many payments to make each month on all the other cards. And after a few months of paying down the cards with the highest balances the monthly payment will lower anyway. My husband's income isn't great so continuing to have all those other payments for a while will be tough to manage. I just want to get a good handle on the finances again without going back into the credit cards which was my biggest issue this past year. It's beyond stressful.

Oh and we have three kids lol, so that's why our refund is so large.

[forestgreenrover]

Looks like with that tax return you could have six of them (exclude Paypal and Marvel) at zero balance with a little left over. That way you could at least lose the worry of juggling payments, and you would have knocked out at least one of your big three. It would just depend on how far you'd have to stretch to make headway on those two leftover accounts. Or, you could pay off the bottom five accounts and then spread the other $3500 across the three big accounts. Either way, I wish you and your family the best.

[enjoimorenow]

If you want to save the most money, pay off the highest interest rate balances first.  If they are all similar in interest rates you can choose whether you'd rather pay off the biggest balances first or if you'd rather pay off the most cards first by going after the lower balances!

[Anonymous]

There are two schools of thought on this topic.  Which you choose to follow depends on your immediate and mid-term goals.  

If your goal is to save as much money as possible as quickly as possible, then the advice would be to start with eliminating any small (<$500) balances first to lower your monthly debt service, then tackle the larger balances in order of interest rate, highest to lowest.

If on the other hand your goal is to increase your credit score as quickly as possible, then it be comes a bit more complex.  Your first task would be to ensure that none of your cards are reporting as maxed out, by getting all your balances under 90% of each card's respective credit limit.  Then you would continue paying down balances in order to put as much available credit between balances and limits as you can, then work on maximizing your utilization - it looks something like this:

1. Pay all cards under 90% of limit

2. Pay all cards under 70% of limit

3. Pay all cards under 50% of limit

4. Pay off smaller balances completely until >50% of your tradelines report a zero balance

5. Pay all remaining balances under 30%

6. Pay all remaining balances under 10%

That's it - Good luck to you on whichever path you choose!

[Anonymous]

Thank you guys SO much for your advice! @TygerHawke thank you for laying it out like that, that helps so much. Getting my score good again is top priority as well, especially since I worked so hard on it to begin with haha. So I think that's what I'll do. I hate having such a high utilization on those cards so I'll get those down a bit and then pay off what little balances I can.

[rmduhon]

Honestly,it really depends on what the balances are in relation to the credit limits.

[damnedanddetermined]

oh, and I would take a portion of that and put it into savings (emergency fund) because as fantastic as it is to pay down cc bills....these creditard companys will not take care of you while youre going hungry...food for thought

[Anonymous]

PayPal is about maxed, Marvel is too since they lowered my limit, merrick is close and so is Credit one. I mapped out a plan based on your advice and that would lower the balances on my highest cards to below 90% utilization but it would still leave about six cards to pay each month. I'm thinking my credit score should get better with the lower utilization so would debt consolidation be an option? I'm with a credit union and there's no doubt their interest rate would be lower than what I'd be paying on the remaining cards. But I've read conflicting things about debt consolidation loans so I'm unsure if that's the best thing.