Debt repayment advice
Question: I have a quick question and would like some advice or suggestions:
I have 5 credit cards that are currently on a credit counseling plan (Bad Idea but long story). We have paid down nearly 10k in debt with about $8,907.49 in total balances left. We keep paying the original payment and just keep rolling the extra into the next card. Our total payment to the cards each month is $420. This is how much the credit cards receive, we actually pay 460 a month but 420 is what’s distributed. My question lies as such, I am listing our current cards and current minimum payments we make. We currently have $116 additional funds to apply to the cards due to a recent pay of on a card. I would like your suggestions on how this $116 should be applied.
Balance APR Payment 1254.76 9.9 25.00 358.29 10.0 20.00 4104.37 12.9 127.00 1911.03 17 50.00 1279.04 19.99 82.00 ================================ 8907.49 304.00 -420.00 (116.00)
My plan was to dump the entire 116 on the last card with a balance of 1279.04 and 19.99 % but looking at the card with the balance of 1911.03 and 17% I don’t know if it may be better to pay the 116 on this card due to it’s balance and small apr difference.
Suggestions would be great since I don’t know the best way to calculate this out to tell me where the money would most benefit me.
Answer: Mathematically, it’s simple – you’ll pay less interest overall if you pay off the highest rates first.. But there may be more than one way to “pay off” the highest interest card.
The first way is to send them money that you’ve earned. The second way is to borrow money at a lower interest rate, and send them that. The loan then goes onto the list, and you pay it off in its turn. Where would you borrow that money? I’d look for a balance transfer to one of the other, lower rate, cards. Even though it makes mathematical sense, I would not take out a home equity loan – I freely admit an emotional bias here.
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