I’m trying to get out of debt, and wonder, is it a better strategy to pay off the smallest debt first while paying a minimum to other debts, pay off the highest interest rate debt first, get some kind of loan and consolidate the debts, or just sort of pay something to all debts at once?
I was doing “pay off the smallest debt first”, managed to pay off one debt, then got hit with some vet bills and car repair bills all at once and had to put them on a credit card, so now have just as many debts, so I’m feeling pretty discouraged. Actually applied for a consolidation loan from my bank and got turned down. So now what? just keep plugging
we were turned down for a consolidation loan as well. it was very frustrating. do you have a family member that might be willing to loan you some money as a personal consolidation loan? i know one thing that has been helpful for me is the thought that when something goes wrong i am personally ABLE to cover it, even if it means putting it on a credit card, vs when i first started, everything was maxed out and i would have had to call someone to bail me out.
strategy depends on what works best for you. If you really want to save money in the long run then highest interest rate is best. However if you need to see progress then pay off some of the smaller ones first. There is a great calculator at Bankrate.com called the paydown wizard that is what I use so I can see where my money is really going.
That is why, for those who subscribe to the Dave Ramsey (there are others) method, Step 1 is $500 – $1,000 in the bank as an emergency fund. What you described sounds like emergencies. What does not constitute an emergency is annual bills, replacing worn out tires, etc. Replacing a blown good tire is an emergency. You see, you should have planned on replacing worn out tires by saving for them.
Step 2, is what you were doing, pay of smallest to largest. We are still on Step 2 and have paid off 3 debts with 7 more to go. We were hit with several emergencies this month which brought our emergency fund down to about $100. I will now make minimum on everything until I get that back to $1,000. Then I will go back to Step 2.
Good Luck and do not despair! There are lots of people in the same predicament, hence this great group!
There is at least one site where you can set up a loan through an individual. It is set up to charge interest, but you could work that out if they would charge less than the (I think) minimum 6%. Do a search for for personal loan management…
I believe it reports your payments to help your credit score. Also that is another thing to consider… are you worried about your score, or are you worried about getting the most for you money (or losing the least rather) in the cards vs. other loans.
In that last few years my credit score has went up at over 100 points. Pay your bills on time always. If it’s going to be reported don’t be late at all. Apparently, according to one card I have that gives me my score free every month, somehow it also knows if you pay over the minimum (anyone know for certain on that) so always set it up to pay an extra $1.or so anyway. The mix does of types of credit does help your score, BUT if you are not especially worried about your score but more in bringing down the debt, then you would want to pay of the higher interest first.