What do I pay off first CC's or Personal Loan?

[Anonymous]

Hello everyone,

I would like to start paying down debt to bring up my credit score. My main goal though is to pay down debt, i just don't know where to start. I am well over my credit limits i know - an I want to improve my ways I PROMISE. i am tired of giving the minimum payments every month however i dont have the money to pay it ALL down. I have $8k to use to put towards my debt.

Credit Cards

Cap1 $1,565 Balance $1,500 Limit $85 MP 24%

Cap1 $816 Balance $750 Limit $59 MP 24%

Kohls $280 Balance $300 Limit $27 MP 25.4%

Vic. Sec $240 Balance $250 Limit $27 MP 26.24%

BB $3,031 Balance $1,950 Limit ($250 has promotional 0% interest) the remaining was a big add-on of $1500 when I didn't pay the promotional balance I had with them. SO originally the balance was $1,450 now it doubled. 

Personal Loan

Balance $4,054   $205 MP   18%

Health Care Opt Loan  $1,900 balance $145 MP - not sure the interest rate.

LOC with Ameritek $3k Balance $114 MP - this account was a charge off and it was sent back to the original distributer. It has not been sent to collections because we've been making monthly payments HOWEVER these new payments are not being updated on CRA's, we are currently disputing this.

Background - We have 4 children, a mortgage and 2 car payments - my husband and I both work. I have read some of the posts on here as to how to cut back on unnecssary expenses (ex. cable, eating out, etc) so we have agreed to ditch certain things.

We are working on finalizing a monthly budget but I want to pay some of this down beforehand.

MY thoughts - I've considered paying off the Personal Loan $4,054, HC Loan $,1900 and Ameritek $3k which I know I would still owe about $1k to one of these. But Monthly payments saved $464   *The only thing about this option i don't want to pay Ameritek until issues are resolved.

OR

Pay off

CC's $5,930 + HC Loan $1900 Monthly savings $470 - however i believe i have to keep using one so it reports to CRA's

Iv'e

PLEASE help.. where should I start?

[HeavenOhio]

You'll get a lot more scoring mileage out of paying down revolving accounts, i.e. the cards and the line of credit.

I'd start by paying off the five credit cards simply because the interest is high and because you can. After doing that, watch your following statement for trailing interest. The trailing interest amounts should be very small, meaning that it shouldn't be an issue to pay those bills immediately.

That leaves about $2,000 for you to play with. What's the interest on your LOC?

[HeavenOhio]

Oops, forgot this. Yes, you'll want to let at least one card report a small positive balance to the credit bureaus as there's a scoring ding when all cards report zero. However, all cards at zero is a lot better than the situation you have right now. If they're all at zero for a short period (less than a month, probably), it's worth it to clean up any trailing interest. Once you've cleared that out, then you can go ahead and let a small balance report on one card.

[Anonymous]

That makes really good sense! Maybe I can pay off the Health Care Loan $1,900 Balance $145 MP, and I'm not sure the interest on it. It's in my husbands name only but it's a monthly payment I can get rid of.

As for the LOC, at this moment there is no interest  - However.... the issue that is being resolved is what is holding me back on paying that. Originally the LOC belonged to Preferred Credit - they financed some merchandise for us. I defaulted in 2016. They sent the account back to Ameritek Industries the original distributer on March 2017. As of March I have been making monthly payments on time to Ameritek and the whole payment is being applied to the balance owed. Issue is, they are not reporting it to CRA's. On my CR it shows Preferred Credit as a Charge off / Write Off. When I contact PC they tell me I need to contact Ameritek. Ameritek has the account which we've been paying but technically we don't have an open line of credit with them that is showing on our credit reports. Ameritek told us our account is in review becuase they paid off Preferred Credit when they got the account back (is what Ameritek said). It's a HUGE mess and I'm stuck not knowing what to do with this. I was ready to pay Ameritek off but it was suggested that I don't do that since my obligation / committment is with Prefferred and not Ameritek. I hope I explained it clear enough :/

[Appleman]

Congrats on starting the plan to pay off debt.

If you do not have a budget set up, I would recommend doing that first. I prefer YNAB (You Need a Budget) and others here like Dave Ramsey (to name just two). With a budget you can stop creating new debt and build up an emergency fund.

There are many free tools that allow you to create a plan for debt pay-offs, AKA the Snowball method. There are free examples on the internet. You plug in the debt, interest rate and payment. It will show you how long it will take to pay off the debt. The snowball method works by paying the smallest balance first and once an item is paid off, that 'saved' payment is now used to pay toward the next smallest balance.

The other method is the Avalance method which has you pay off the highest interest rate first. For someone who may be over-stretched this may not work as you continue to have no reduceduction in payments until something is eventually paid off. This will likely save a bit of interest paid but for most the snowball is a more workable solution.

Good luck!

[HeavenOhio]

In this case, the OP gets to snowball and avalanche simultaneously because of the way the balances and interest rates work out.

[Anonymous]

I will definitely look into the Snow Ball method and also review our budget we put together before we start. I greatly appreciate your advice 😊 Thank you