Soliciting Advise
Tomorrow is payday.
According to my budget, I will pay off Credit Card number one tomorrow and start in on Credit Card number two. But that's where the problem is. Do I pay off the highest interest one or the lowest balance?
I will have three cards remaining. The lowest balance has the lowest interest. The middle balance has the middle interest. And the highest balance has the highest interest.
Normally I would think that the highest interest should be first. But then I started thinking...
(Oh, the humanity)
I owe a few thousand on each card, but my income is pretty good. So each card would only take a couple of months. So if I were to pay off the lower interest rate, it would pay off slightly quicker and the snowball effect could outweigh the higher interest rate. Couldn't it?
I know Dave Ramsey says to pay off the lower balance first, regardless of interest rate. That way you get the psychological boost of paying things off, and it reinforces your behavior, making it more likely that you will continue on your budget.
So here's what it will look like tomorrow: (approximately)
CC1: paid off
CC2: 2700 balance, 0% interest
CC3: 3500 balance, 8% interest
CC4: 5200 balance, 12% interest
Car: a lot.
Student Loans: even more than that.
So which one do I hit next, and more importantly, why? Keep in mind that I am paying more than $1600 extra per month on my credit cards above the minimum payments, so the time frame isn't as long as you might expect, so I don't mind paying an extra month's worth of interest if there is a good reason to do so.
posted by jagular @ 1:41 PM
3 Comments:
maybe do the snowball...i think the psychological effect will be worth it now that you see the results (low cards getting paid off faster) almost right away.
is there any way you can call your CC4 issuer and ask them to lower the interest rate? i don't see why they won't especially that you are a good customer/payer.
I agree w/the Princess. Pay of the lowest one first AND call cc4 .. as I am sure that your credit history is good, they will likely reduce your interest. At least that's what Clark Howard says :O)
When I got out of college, my Discover was at its peak balance of $2400 with a 12 or 13% interest rate. Since I was never late or missed a payment (even though in college I could only afford the minimum but at least I paid), they agreed to knock it down to 9%. Every bit helps. I hope they can make a similar arrangement with you.
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