No. of Recommendations: 3
Current Debts

1. $5900 at 5% Lawsuit
2. $1300 Wedding Debts.
3. Student Loans $60, 252.97
4. DMV $244 per month for the next 3 years.
5. MBNA at 12K at 12%
6. Fleet $1600 at 2.9%


Zeroth rule: Never fail to make the minimum payment on anything where there's a judge or a government agency involved. If this means you can't pay your rent, move in with a friend for a month and then move to a cheaper apartment. You can try to arrange a lower minimum payment, but do this WHILE CURRENT on it.

First rule: Never fail to make the minimum payment on anything else, either. In some cases you can try to arrange a lower minimum payment.

That includes debts to family with no written contract. Unpaid debts of this sort have a VERY high interest rate... you tend to lose the respect of your family. On the other hand, the payment schedule is likely to be EXTREMELY negotiable as long as you pay SOMETHING every month, and the person you owe understands that you're on a program which results in him getting paid off reasonably soon.

Now you're into extra-payment land...

(2) If there are any court judgements against you, you are probably better off paying them off quickly even if they have low interest rates.

(3) Then, pay off your debts, highest interest rates first. If some of your debts have tax-deductible interest (in your case, perhaps the student loan), reduce the interest rate appropriately. However, if that deductibility will expire before you have half the current balance paid off (or, for any reason, any of your debts have a low current rate and a higher future rate), then use the higher rate.

Exception: if you have a cash-flow problem, then apply extra payments (when you can manage them) to the debt closest to being eliminated. This will usually be either the one with the smallest balance, or the one with the fewest remaining payments.

(4) Once you get down to debts with a tax-adjusted rate under 6%, you probably should be looking at investing the money rather than paying off debts. That is, unless there are considerations other than the strictly financial...
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