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I have one year left on a car loan at 3.99%. The remaining balance is 4+k. If I really stretch my budget this month (raid my pantry, limit car trips, suspend savings, etc) and then raid my pockets, piggy bank, and the couches, I can pay it off. The monthly payment is $527.22. Or I can just put 2.5 - 3k towards my highest interest credit card (15.24%) reducing the balance as I have been doing.

I'm tempted to get rid of the car loan. Freeing up that extra $500/month would give me 6k to put towards debt over the next 12 months.

Thoughts?
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Highest rate first seems to win every time


jk
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Emotionally, the car loan wins. To pay the least interest, the highest rate credit card wins. The difference is around $200 in interest.

You math is a little off. If the remaining balance is 4K and the payment is $527 a month, it won't take a year to pay off the car. Payoff is closer to 8 months, after which the $500 a month is available for other uses.

How tight is your budget? Is the $500 a month car payment a problem or would the entire car payment be allocated to debt?

Do you have an emergency fund? Raiding the pantry, pockets, etc. and suspending saving is not necessarily bad. Draining your emergency fund is not a good idea.
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You math is a little off. If the remaining balance is 4K and the payment is $527 a month, it won't take a year to pay off the car. Payoff is closer to 8 months, after which the $500 a month is available for other uses.

Yes, you may be right on that. 4 years ago when I got the car loan, it was my only debt and I would sometimes round the payments up and pay $530, $550, or $600 depending on what extra funds were available.


How tight is your budget? Is the $500 a month car payment a problem or would the entire car payment be allocated to debt?

The $500 would go to debt. I've cut our expenses way down, but our monthly obligations are still numerous - mortgage, car loan, lease payment, student loan, utilities, phone, plus min payments on cc debt - and that is just scratching the surface. There's also child care, home maintenance, gas, groceries, etc. Would be nice to eliminate a monthly payment.

Do you have an emergency fund? Raiding the pantry, pockets, etc. and suspending saving is not necessarily bad. Draining your emergency fund is not a good idea.

The e-fund would remain intact. We haven't touched it in years and it is equal to about 18 months of expenses, includ debt service. My husband's job is stable-ish, but there's enough uncertainty that we've left it intact. It would take some time before he could find a similar position. We have not added to it. Savings now go towards retirement and 529s. Maybe I should divert some of that money towards debt repayment. Its in cash earning peanuts. Will talk to hubby about that.
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I have one year left on a car loan at 3.99%. The remaining balance is 4+k. If I really stretch my budget this month (raid my pantry, limit car trips, suspend savings, etc) and then raid my pockets, piggy bank, and the couches, I can pay it off. The monthly payment is $527.22. Or I can just put 2.5 - 3k towards my highest interest credit card (15.24%) reducing the balance as I have been doing.

Freeing up that extra $500/month would give me 6k to put towards debt over the next 12 months.


That $522.27/month is already going toward debt repayment. It's paying off your car loan. You won't get any 'extra' to put toward debt repayment, that you couldn't realize by stretching your budget this month and putting it all toward the 15.24% card.

In fact, if you stretch right now to come up with the extra $3.5k toward the 15.24% credit card that as of 6/30 had $13,500 on it, in addition to the $2.5k that you say* you have been putting toward that card, you will pay it card down by over $6k in one month - you will be down to about $7500.

*When you first came here 3 months ago, you had a balance of $23,500 on the AMEX. By the middle of April, the AMEX balance was down to $14k, according to this post: http://boards.fool.com/my-week-of-credit-card-reduction-3121... 2 1/2 months later on 6/30, you said that the AMEX balance was now down to $13,500 in this post: http://boards.fool.com/i-owe-i-owe-its-off-to-work-i-go-3130...

I know you said you had a 'hard time sticking to the plan'. But either your numbers were wrong in one or both of those posts, or you have only paid a total of $500 more than the interest accrued on AMEX in 2 1/2 months. Since $14k at 15.24% only accrues about $180/month in interest, that means that you have only paid AMEX between $860 and $1040 in 2 1/2 months, depending on if you had 2 or 3 monthly payments due.

Unless you've been adding charges to the AMEX (which you *said* you had stopped doing) there is no way you've been paying AMEX $2.5k - $3k/month.

If you want to succeed in your endeavor to pay off your debt, you really need to start being real with yourself about how much and what you are paying. If you really want to pay off the debt in interest rate order, then do it. It's okay if you want to pay some debts off out of order because it gives you an emotional lift, and more motivation. But be truthful to yourself about it and put a plan together that shows that. Don't tell yourself you've been paying AMEX $2.5k - $3k/month when you haven't.

If you had really been paying $2.5k - $3k per month to AMEX without adding any charges, you would be well below $10k on the AMEX by now, and if you scraped everything together for the next 2 months, along with the $2.5k - $3k that you were going to pay, you could probably pay it off next month. Instead, you are still at $13.5k

So, you need to decide - what's really more important to you - paying the least in interest, or paying off particular debts? And then, be truthful to yourself and put a plan together to support that goal, and stick to the plan.

AJ
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an e-fund of 18 months of expenses seems like a luxury when you have significant consumer debt. I'm sure opinions differ, and I certainly don't know your situation or risk tolerance, but perhaps reduce that down to 12 months of expenses (or even 6 months) and use that for some significant debt reduction, provided that you then build it back up again.

We've never had an 18 month e-fund, although we do have other resources that we can draw on in a true emergency. The e-fund was up to around 12 months at one point. Ours is probably around 6 months currently, but plenty of money in retirement (trad IRA, roth IRA, 401(k) plans) and no debt. Employment is very secure and on track for retirement in 5-10 years.
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So, you need to decide - what's really more important to you - paying the least in interest, or paying off particular debts? And then, be truthful to yourself and put a plan together to support that goal, and stick to the plan.

Intellectually I know paying off high interest debt is the better choice. But I have been jumping around. Amex still has a large balance because I paid off one of my bank of America's at 11.24. I believe the balance was in the range of 3k. I got a BT offer from discover but my last two BT offers from chase and citi offered me a credit line of only 3k. I didn't think discover would do any better so i decided against taking the hit to my credit. i instead directed my xtra payments that month and paid off my bank of america. I had hoped bank of America would offer me a BT for the full credit line of $7200. So far they have not. I also paid a little more towards chase at 14+%. The problem is I want these balances gone, long gone. It's hard to focus on 13k which is HUGE when there is low-lying fruit like the car loan which I had up to this point been keeping out of my debt repayment attack. I also have the cap one at 9.9 which is 3400 right now distracting me and the bank if America in the 3k range at 9.9 also tempting me. So being truthful to myself I guess what is ultimately more important to me is achieving those zero balances. I'm going to forgo paying the car loan for now and focus on either Amex or possibly one of the 3k balances.

I don't like snowballing. There, I said it. I just don't like it. It bothers me to ignore potentially payoff-able debt to focus on just one debt at a time. I not only don't like it, I hate it.
And you know what AJ, I'm not doing it anymore. I'm going to back away from the car and student loan for now. But the 3k balances r fair game at this point.
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I've cut our expenses way down, but our monthly obligations are still numerous - mortgage, car loan, lease payment, student loan, utilities, phone, plus min payments on cc debt - and that is just scratching the surface. There's also child care, home maintenance, gas, groceries, etc. Would be nice to eliminate a monthly payment.

Is the lease payment also for a vehicle? Do you have a plan on how you will replace that vehicle when the lease comes due?

Also, I would like to suggest that once you have the car loan paid and after you have finished paying off your debt that you put your car loan amount into a separate savings account to be used to buy the next vehicle so that you don't have another car payment waiting for you down the line.


Savings now go towards retirement and 529s.

I agree about putting some savings towards retirement, but with all the debt that you have, I would not be putting anything else in the 529s. The kids will have options around college including delaying, attending community college for 2 years and then transferring to a 4-year college, finding a job that has tuition reimbursement and using that to fund college, and taking out their own student loans. If you are saving in their 529s while paying interest on all your debt, that college savings is already costing you more because you are not using it to reduce your debt.
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I don't like snowballing. There, I said it. I just don't like it. It bothers me to ignore potentially payoff-able debt to focus on just one debt at a time. I not only don't like it, I hate it.
And you know what AJ, I'm not doing it anymore. I'm going to back away from the car and student loan for now. But the 3k balances r fair game at this point.

=====================================

Do you hate snowballing so much you are willing to pay more for not doing it?

You're not ignoring payoff-able debt, you're still paying it down. It's the total debt that is reduced faster using snowballing.

That said, it is great that you are paying down the debt and not adding to it.

Jean
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The problem is I want these balances gone, long gone. It's hard to focus on 13k which is HUGE when there is low-lying fruit like the car loan which I had up to this point been keeping out of my debt repayment attack. I also have the cap one at 9.9 which is 3400 right now distracting me and the bank if America in the 3k range at 9.9 also tempting me. So being truthful to myself I guess what is ultimately more important to me is achieving those zero balances. I'm going to forgo paying the car loan for now and focus on either Amex or possibly one of the 3k balances.

A plan that works for you is the best plan. Decreasing the number of accounts decreases the possibility of problems with accounts. Paying off 3K at 9.9% means you are paying $300 less in interest a year. Not quite as good as paying down a higher interest account, but it isn't a bad decision. If seeing the small account go away keeps you motivated to pay down debt, then do it. Maybe after paying off a small account, you can allocate some payment to the AMEX before starting pay off of the next account.
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I had hoped bank of America would offer me a BT for the full credit line of $7200.

Well, it can take a little while after you pay off to get into the marketing push for BTs. I would try looking online to see if they have an offer for you there. If they don't, then you could try calling and asking about doing a BT.

I don't like snowballing. There, I said it. I just don't like it. It bothers me to ignore potentially payoff-able debt to focus on just one debt at a time. I not only don't like it, I hate it.
And you know what AJ, I'm not doing it anymore. I'm going to back away from the car and student loan for now. But the 3k balances r fair game at this point.


If that's what works for you, then that's the best way for you to pay off the debt. There are always opportunity costs. If you were snowballing, the opportunity is having to continue paying more bills each month, at a gain of paying less in interest. If you choose to pay off smaller debts, you will gain by not having as many bills to pay, and your opportunity cost will be the extra interest you will end up paying on the AMEX.

For me, I'm a numbers kind of person, and to not snowball would seem to be less efficient to me. But, if you need to be able to pay off all of the smaller debts before you can concentrate on the big one, then you just need to acknowledge that, and set up a plan for that method.

AJ
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If that's what works for you, then that's the best way for you to pay off the debt. There are always opportunity costs. If you were snowballing, the opportunity is having to continue paying more bills each month, at a gain of paying less in interest. If you choose to pay off smaller debts, you will gain by not having as many bills to pay, and your opportunity cost will be the extra interest you will end up paying on the AMEX.

For me, I'm a numbers kind of person, and to not snowball would seem to be less efficient to me. But, if you need to be able to pay off all of the smaller debts before you can concentrate on the big one, then you just need to acknowledge that, and set up a plan for that method.


I second that emotion (can we all sing together?)
It sounds like you need (and I completely understand this) the emotional boost that will come from paying off your car. Go for it! It's all good. In my rental real estate payoff plan, my strategy was to pay off the lowest balances first. The sooner I did that, the sooner larger amounts of capital became available to snowball into the next mortgage. Of course, the spread between highest and lowest interest rates was only about .5%, so the emotional boost was worth far more than the monetary advantage of paying off the higher interest balances first.

In the end, I've taken $177,650 in debt and whittled it down to $90,813 in only 19 months. That's $86,837 paid off. More here:

http://payoffmyrentals.blogspot.com/2014/06/what-snowball-up...

We could argue the financial merits of doing it differently all day long. But, in the end, it's all good! Do whatever helps you stay on track.
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I don't like snowballing. There, I said it. I just don't like it. It bothers me to ignore potentially payoff-able debt to focus on just one debt at a time. I not only don't like it, I hate it.
And you know what AJ, I'm not doing it anymore. I'm going to back away from the car and student loan for now. But the 3k balances r fair game at this point.


Have you ever really looked at the numbers ? If you are spending time looking for coupons to save money on milk, you are wasting those savings by not paying off your highest interest rate debt the fastest.

Paying off low balances makes you feel better. I suspect the overspending that got you there made you feel better - temporarily.

Why not just automate* it all so you pay the minimums on the lower interest loans, budget and pay the maximum you can on the higher interest ones and put a moratorium on spending on anything unnecessary ? I'm sure this will be met with "it will be so hard I can't stick with it." You might be surprised what you can do without or postpone when you realize how much each purchase really costs because you have high interest debt.

*Automating savings particularly from any increase in income is how loads of people manage it. It's much hard to do anything when you are looking for what's left instead of taking it off the top.
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RAD,

I suspect my problem is looking at the numbers too much. I've entered and re-entered my numbers on the snowball calculator on whatthecost.com at least a dozen times. I've also automated payments in the past, but had an issue with a payment landing on the weekend and the bank recording it late. The late charge was reversed but the experience soured me on automated payments. Also my cash flow last year was not as good as it is now, and ran into overdraft fees on my checking. Last year I paid over a $1000 on overdraft and negative acct fees. It was awful. I am so grateful to be in a better place this year.

Gonna go back to the snowball plan. Will automate the minimums on the lower interest cards. Also to stop driving myself bonkers, will only look at the balances once per month. It's when I review my mint account and see all the debt all at once that I start scheming and deviating from the plan.

Hopefully will be posting an Amex happy dance in the next 4 months.
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Is the lease payment also for a vehicle? Do you have a plan on how you will replace that vehicle when the lease comes due?

Not sure if you remember from my previous posts, we have three cars. The van, that we are currently paying, is used by the nanny. My work car is the lease, which is fairly new. Hubby's car is paid off. When the lease ends, we will not need a nanny and the third car. If we do need a nanny, we will have her use her own car as you had previously suggested to me.


Savings now go towards retirement and 529s.

I agree about putting some savings towards retirement, but with all the debt that you have, I would not be putting anything else in the 529s.

I have such a hard time with that. I cant imagine not putting away something for them. I contribute $150 for the three, which is less than what i had previously set aside pre-debt. I set up the 529's - in the same second I found out I was pregnant. I went from pee-stick to husband to mom to computer in a single heartbeat. I'm willing to suspend contributions for a month, maybe two, but 18 months....not sure. I also get a state tax deduction which is an added benefit.
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I have such a hard time with that. I cant imagine not putting away something for them. I contribute $150 for the three, which is less than what i had previously set aside pre-debt. I set up the 529's - in the same second I found out I was pregnant. I went from pee-stick to husband to mom to computer in a single heartbeat. I'm willing to suspend contributions for a month, maybe two, but 18 months....not sure. I also get a state tax deduction which is an added benefit.

The $150/month is $1800, or $600/child annually.

The opportunity cost for contributing to the 529s over the course of a year is that you would pay about $135 less in interest on your 15.24% card, and your balance at the end of the year would be about $1935 less.

The opportunity cost for paying the card is that you would lose the state tax deduction and each child's account would be about $625 less, for a total of $1875, if you assume an average return of 8% over the course of the year. If your marginal state tax rate is 7%, the deduction loss will cost you about $126, assuming you still have enough other deductions to overcome your state's standard deduction.

Net/net, you/your kids probably come out about $65 ahead for the year by contributing to the 529s instead of paying down the debt, with the assumptions I made. It doesn't take much of a decrease in either the marginal state tax rate or the rate of return before paying down the debt would come out ahead. So, this is probably one of those things that you can justify either way, depending on the assumptions you make.

But if you are serious about paying down the debt, you should really look at the numbers with your own set of assumptions before making the decision to contribute vs. pay down debt, and not just decide to contribute because you would have 'a hard time' not contributing.

AJ
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Do you know how much you are paying in interest in a month?

Tracking that figure might encourage you to reduce the high interest rate debts more quickly.
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