Money Matters

What is your plan for paying off debt?

H and I are currently in the process of deciding what student loans and/or other debt we want to pay off first (so where do we want to make sure to put extra money every month while continuing to pay on all our other loans).  This made me curious as to how others are working to pay of different debts.  For example, are you focusing on the largest balances or the largest interest rates? Why?  Currently I think our plan is to look at interest rates, but we're still in debate.  Our goal is to have a decent amount paid off before we start TTC!
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Re: What is your plan for paying off debt?

  • A lot of posters here, myself included, are fans of the Dave Ramsey way of snowballing and getting out of debt with baby steps. You can listen for free online to his radio show M-F 1pm CST-4pm CST.

    I highly recommend it. I worked a 2nd job and crafted to get of out debt. DR actually suggests delivering pizzas a night or 2 a week. I waited tables and bartended. Throw all that extra money on your debt.

     Living life on much less helps the debt melt away faster!

    You'll feel a tremendous weight being lifted off your shoulders when it's all gone!

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  • Personally, I'm paying off my cards from lowest to highest balance. Once the lowest is paid off, I'm going to take the amount I'm paying on the 1st card and applying it to the next card until all cards are paid off. Most people start with the highest interest rate, but I'm motivated by small victories, so the lowest to highest balance approach works for me.

    I just started a new job a month ago, so I'm still in the early stages of my plan. H and I have discussed that we're not making any big purchases for a while. I'll be getting a pay increase in January, so I'll re-evaluate my debt plan then to make adjustments as necessary. My plan is to have all cards paid off in 18 months. It can be done, you just have to make a plan and stick with it.

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  • I like the lowest to highest balance pay off plan.  Just like OP said, i am motivated by small victories.  Make sure you stop using your CC and see where you can cut back.  While paying off debt we stopped going out to eat and we bring our own lunches.  Its amazing how much money we spent on those things.  Good luck.
  • We have been paying off debts in a way that would give us the best cash flow each month. So we try to pay off the debt with the highest payment so that a bunch of money is freed up to pay off the next one which works really well for us. We also save each month so if a huge life event comes up we aren't using credit cards or loans to dig us out. Like right now my husband is on strike and I'm a SAHM so we have been using our savings and still paying off debt instead of using credit cards to make our monthly payments. 
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  • What we did was each get 2nd jobs, use that income to pay off the CC's sooner.  We did that for about a year, paid that off everything but the mortgage and SL's.  For us that was enough, since those two things for us are the only tax deductions we have at this point.  It was a hard year, we gave up a lot, no family events, etc and together time, but it was worth it in the end.  Its about working as a team for us, if we need more money for something we save for it, research then buy.  It is about learning from our mistakes and moving forward.
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  • I guess it makes most sense to me to pay the highest interest off first, because in the long run you'll save more money.  I understand the "small victories" sentiment, though.
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  • I've heard many others talk about paying off smaller balances first, that way there is one less thing to focus on, but I think paying down balances with the highest interest rates makes the most sense.
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  • We began by paying off our CC with the highest interest rate, but is also had the smallest balance. It was paid off in June. Now we are working at our next highest interest rate, but it has our biggest balance ($21K). We are currently throwing an extra $700 a month on this card. Our lowest interest rate CC is my CC and is only at $8K balance. I am paying more than the minimum, but not much because I want DH to put as much as possible on the $21K CC. Any extra money I am able to squeeze out of my budget (usually less than $100 a month) I put on my CC to try to work down the balance. I am a SAHM so I am not able to bring in more money. But this fall my SIL is going to pay me cash to provide aftercare for my niece. Half the money I am going to use for activities for my kids and the other half is going on my CC to get the balance down even more. Once I get the balance below $4K we are going to stop paying extra on the $21K CC and throw all the extra money on the lower balance card to get it paid off in 6 months.

    This system doesn't work for everyone, but it is what is working best for us. The current amount I am paying on the $8K CC every month ($260) will have this card paid off in 3 years even if I don't put extra money on the payment each month. So it is smarter to work on our higher balance card since we need to put a lot on it each month to get it paid off in 3 years. This is our current goal to be CC free in 3 years.

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  • We've been successful by following Suze Orman's advice. We started out by making a list of all of our debts... then rank ordered them by interest rates. Once we paid off the highest interest rate, we took all of that payment, and added it to the next highest. This strategy is taking a lot of commitment, as some of our next highest (student loan) will take about 2 more years to pay off.. but in the end, it will save us the most money. 

     Reading Suze Orman's The Money Book for the Young, Fabulous, and Broke was incredibly helpful for us! We've gone back a few times for tips on different topics.  Good luck!

  • We just finished paying off all our debt except for our mortgage last week.  First we tackled the credit card since that had the highest interest rate.  Then we paid off all of our student loans since those haunt you even if you declare bankruptcy.  Last week we finished paying off the car.  It got eaiser to pay our debts once less of our expenses had to go to fixed debts.  Next we're going to build up our emergency fund which is only at $1000 as recommended by Dave Ramsy.
  • I'm giving serious consideration to a second job to help pay down some CC by year end and hopefully throw some extra money towards my car payment. It's not very high but anything I can do to help get it paid off faster. The CC is at no interest but I want it gone sooner rather than later.

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  • I'm liking all of this advice!  My question is - where do 0% interest CCs play into things?  Do you still try to get them paid off ASAP, especially if the 0% APR only lasts until a certain date?
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  • For sure get rid of the highest interest rate first, why would you pay more money in interest costs?

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  • I am the author of a book and workbooks for newlyweds', Managing the Marriage Purse, which covers an entire array of financial issues that couples face, especially debt reduction.  I personally paid off about $100k in student loans, car, and credit card debt by paying off the lowest balances first, ignoring the interest rates...but the key for me was motivation...figuring out how we could make an impact through what we call a "marriage mission" with all of these debt payments once we paid things off.  I hope this is helpful.    
  • We're currently doing this... and our strategy was to take how much time you have.. ours was 6 months 0%... so we decided to pay it off in 4 just to be safe... divide the balance by those 4 months. Take that out of what we're paying on our highest CC. Once it's paid off.. those payments go back onto the highest interest rate. It has to be a priority to pay it down to avoid an incredibly high... in our case.. somewhere in the 20s% interest rate. 
  • my plan is to live below my means. I have been tracking my expenses and income lately, and now i am seeing where most of my money is going. 

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  • I am motivated by saving as much money on interest as possible. So we focus on paying off the highest interest rate as possible. 

    You should download this excel template which allows you to enter all of your debts and interest rates and minimum payments.  Then you can enter how much extra you can put towards paying off debt and it will show you how much interest you will pay over the life of all of your debt and when you will have each paid off.  You can adjust it based on Snowball (highest balance) and Avalance (highest interest).

    http://www.vertex42.com/Calculators/debt-reduction-calculator.html

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