topic Re: Pay off first? in General Credit Topics

Pay off first?

turninganewleaf — Tue, 03 Mar 2009 21:12:04 GMT

I'm pretty sure it is common sense, but I was looking at paying off my smallest credit cards one at a time. Here are the three I'm going to tackle first (simply based on smallest balances).

Chevron CL 400, Bal 353, 21.49% APR

Target Redcard CL 500, Bal 468, 20.99% APR (about to go up to 22.99%)

Chase BP Card CL 300, Bal 285, 19.24% APR

Common sense tells me to pay off the ones with the highest APR's first (Target or Chevron). However, the Chevron card I don't use quite as often anymore so I could pay it off and let it sit with a $0 balance.

Are these APR's high for these cards or is that about right? I have mid-600 FICO's.

Re: Pay off first?

turninganewleaf — Tue, 03 Mar 2009 21:49:17 GMT

BTW, these cards are all over a year old and have been in good standing (no negs).

Re: Pay off first?

Anonymous — Wed, 04 Mar 2009 00:32:27 GMT

i would pay them off in order of apr but since the rates are so close and amounts are too small it would likely only cost a dollar or two extra if you pay them in some other order

Re: Pay off first?

Anonymous — Wed, 04 Mar 2009 02:32:35 GMT

1) Call each card and see if you can negotiate reduction of APR

2) Since all the rates are about the same, pay them off equally - so the utilization ratio is the same on each card.

Re: Pay off first?

turninganewleaf — Wed, 04 Mar 2009 16:04:27 GMT

How do you go about negotiating APR's?

Re: Pay off first?

Anonymous — Thu, 05 Mar 2009 05:42:18 GMT

Call the number on the back of each card and say that you think your APR is too high/your other cards have lower APRs. Ask customer service agent if she can lower APR. It doesn't always work, but sometimes it does.

I managed to drop rates on two of my cards from 20ies to single digits. Good luck.

Re: Pay off first?

oneilldn — Thu, 05 Mar 2009 06:49:05 GMT

I'll go for the lowest to higher balance first, not for apr. That's the mistake most people make, when they go for the high apr first. I know it sounds crazy, but doing it by the lowest balance first you are using the "snow ball" technique.

List all your cc's on a paper, starting with the lowest balance one and finishing with the highest balence one. (Doing a budget will work better), then, you will send as much money as you can to the first one on the list while keep paying minimum payments on the rest. When you pay off your first card on the list, you'll add that amount you were paying on the first one to the second one on the list, and so on...The "snow ball" technique was created by Dave Ramsey (the author of "the total money make over", I did it, and it works, why? When you start paying your lowest debt first you start see results fast and you get motivated..... Hope this help.

Re: Pay off first?

Anonymous — Fri, 06 Mar 2009 02:38:07 GMT

This is dumb idea as you pay extra financing charges.

Re: Pay off first?

Anonymous — Fri, 06 Mar 2009 02:52:38 GMT

Please remember to be friendly, respectful, and courteous to all members.

If you disagree with something or someone's advice, please do so in a positive manner.

-sidewinder

Re: Pay off first?

llecs — Fri, 06 Mar 2009 03:09:07 GMT

I agree with the snowball. IMO, he didn't come up with it, but the plan works. Aside from paying off debt faster, you will also see a score increase sooner (FICO like to see $0 balances). Psychologically you'd also feel better having less debt to worry about, or rather less cards to pay. You also run the risk of APR increases in today's economy so basing debt paydown on your current rates is rather risky.

Re: Pay off first?

Anonymous — Fri, 06 Mar 2009 20:18:29 GMT

Both options are viable and in this instance since the balances are so close to each other it won't make much difference interest wise which one you do. I normally lean to paying highest APR first, but since you would get the FICO bumps sooner by doing lowest balances, go for it.

Good luck!

Re: Pay off first?

Anonymous — Sat, 07 Mar 2009 03:21:22 GMT

I agree with the idea to pay off the smallest balances first while paying at least the min balance on the others.

Re: Pay off first?

Anonymous — Sun, 08 Mar 2009 15:04:39 GMT

It can be confusing. However, it also depends on certain factors:

1. Can you afford to pay more than the minimum on one of your cards?

2. Can you make consistent payments?

3. Can you cease using these cards while you pay them down?

If you answer YES to all three, then as a matter of bottom line economics, you will do best by paying the minimun payment on all but a single card. Then pay as much as you possibly can on the lowest balance card. Once that card is PIF, then add the amount you were paying to the PIF card to the next lowest balance card.

Rinse and repeat.

This process has been modeled in spreadsheet analysis and tested enough that it is safe to say that in the end, you will save the most and pay your debt off the fastest with this method.