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For many reasons, my wife and I have a high credit card debt (pushing $60K). However, we have come into $25,000 and want to use all of it toward our balance. We then expect to use another $5,000 of our income tax return toward the balance as well. I have 6 cards with balances and my wife has 5.
What's the best approach to paying these off? Do we pay toward the higher balances first? Do we pay the ones with higher interest rates? Do we completely pay off as many of the smaller ones as we can? Do we do a balanced approach and pay some of each person's or all toward one person? We hope to have the balance paid off in the next 2 years or so.
Our credit report is clean (other than the CC balance). Mortgage, no judgments, no late pays. Just high CC balances. Fico scores for both are about 700 and I suspect the $30,000 in payments are going to increase that significantly. We hope to sell our house, buy a new one this summer as well so the increased FICO scores will help.
Thanks and let me know if you need additional info and all advice welcome.
My opinion would be to focus on the cards with the higher interest rates along with the higher balance cards (hybrid attack). Paying more on the Higher Balance cards and more than minimum on the higher interest cards....
@Anonymous wrote:For many reasons, my wife and I have a high credit card debt (pushing $60K). However, we have come into $25,000 and want to use all of it toward our balance. We then expect to use another $5,000 of our income tax return toward the balance as well. I have 6 cards with balances and my wife has 5.
What's the best approach to paying these off? Do we pay toward the higher balances first? Do we pay the ones with higher interest rates? Do we completely pay off as many of the smaller ones as we can? Do we do a balanced approach and pay some of each person's or all toward one person? We hope to have the balance paid off in the next 2 years or so.
Our credit report is clean (other than the CC balance). Mortgage, no judgments, no late pays. Just high CC balances. Fico scores for both are about 700 and I suspect the $30,000 in payments are going to increase that significantly. We hope to sell our house, buy a new one this summer as well so the increased FICO scores will help.
Thanks and let me know if you need additional info and all advice welcome.
It depends on what your priorities are, and we would need more information than we currently have.
My questions would be:
1. Is your primary goal the improvement of your credit scores to put you in a better position for the mortgage in the summer, or is it to get out debt?
2. What is the original amount of your mortgage and the present balance?
3. Are there any other installment loans open? If so what are original amount and present balance?
4. What are credit card limits and present reported balances for (a) you (b) your spouse.
If your primary goal is not score improvement or getting out of debt, but saving interest, I would also need to know
the interest rates on the credit cards.
I agree with SJ that knowing your goals is important to answering the question.
The two mst touted approaches are simply:
1) Pay highest APR cards first. This saves the most money overall
2) Pay the smallest debt first. The claim is that this is often more successful than 1), because people see visible progress (one less outstanding debt) whereas chipping away at a large high APR balance may not show much apparent progress (even though it is helping more!)
The other thing in your post: you may want to adjust income tax withholding, if that is the cause of your refund. Getting less taken out each check (and maybe owing a small amount) will give you more money to pay the debts in the year.
@longtimelurker wrote:I agree with SJ that knowing your goals is important to answering the question.
The two mst touted approaches are simply:
1) Pay highest APR cards first. This saves the most money overall
2) Pay the smallest debt first. The claim is that this is often more successful than 1), because people see visible progress (one less outstanding debt) whereas chipping away at a large high APR balance may not show much apparent progress (even though it is helping more!)
The other thing in your post: you may want to adjust income tax withholding, if that is the cause of your refund. Getting less taken out each check (and maybe owing a small amount) will give you more money to pay the debts in the year.
100% agree, change the withholding to give yourself more money from each paycheck to pay down debt. I prefer paying higher apr first because it is cheaper and faster but the other way works better for some.
Have you considered getting a lower interest rate loan to pay off the remaining 30k?
Do you have any low/no interest balance transfer options? You could possibly apply for a card or two with low/no interest promo. That would help, if you could get approved.
To give more advice we would have to know the cc balances/limits/interest rates
I know that a lot of people recommend paying highest interest rate balances first, and there is mathematical merit to that. However, I personally would tend to favor paying as many smaller balances off as you can. I think that gives a great psychological boost from seeing immediate progress more clearly, and also helps you make faster progress from that point forward since you'll have fewer payments to make and they can thus be larger. To me this makes more sense than continuing to make smaller, diluted payments spread out among more cards. That's how I personally would do it.
Also, if you can get a low- or no-interest card or loan to transfer the remaining balances to that will help even further, as someone mentioned. Good luck!
@Chris679 wrote:
It does not help you make faster progress, it makes slower progress. The psychological boost is certainly a valid reason for some people though.
Right, it doesn't help you make faster progress towards the final goal of getting rid of all debt. If it did, no-one would propose the highest APR method at all.
Thanks for all of the responses and sorry about the slow reply. Our goal is to completely pay off these balances but there is the house purchase to think about this summer. In the next few weeks we should have the $25,000 + $5,000 from tax refund. Thanks for the advice on changing our withholding llowances, that's not a bad idea. I forgot to mention this before that with the proceeds of the house sale we could pay off the remaining balance of the cards after the $30,000 above.
WIthout further ado, here's the ugly truth below. Hopefully it pastes well. I've included everything we have and it comes up to $68K.
I keep trying to paste an excel spreadsheet and it doesn't like it. Any idea how this can be done? It looks good when I paste it into the box but when I try to post, it doesn't work. Can this be done or do I need to type it here instead?
Thanks