What debt should you pay extra on to pay off early?

[1stTimeCaller]

Let's say a guy has three notes, two for vehicles and one for a house.
He has 32 months left on one @9.75% , 53 months on one @6.5%, and the last has 360 months @ 6.625%.

Should he put all of his money for extra payments towards one note or split them up equally between all three?

[Frozen Sooner]

The 9.75% one.

Then the 53 month one.

Then the mortgage. While it's a higher rate than the other car loan, at least you get to write off the interest on that one.

[OU-HSV]

The 9.75% one.

Then the 53 month one.

Then the mortgage. While it's a higher rate than the other car loan, at least you get to write off the interest on that one.
exactly

[TopDaugIn2000]

according to my church debt seminar, pay off the one you owe the LEAST on first, no matter what the interest rate is, while paying the minimum on the others. Then once that one is paid off, pay what you are paying for it PLUS the minimum of the next until it is paid, and work your way up.

[1stTimeCaller]

Thanks. I was thinking the same but then thought that maybe it should be the house first because although it's cheaper than the 9.75 it costs more in the long run and the 9.75 payment is the smallest.

Thanks guys.

also, I was thinking that the sooner I got to the 20% paid mark on my mortgage I would stop paying PMI sooner for an added savings.

[dolemitesooner]

**** debt and **** church debt semiars...wtf

[jk the sooner fan]

i get the whole argument of paying off the smallest.....but i'd pay off the one charging the highest interest

[1stTimeCaller]

i get the whole argument of paying off the smallest.....but i'd pay off the one charging the highest interest
who asked you?:rolleyes:


:D

[TopDaugIn2000]

the guy that held the seminar is Bob Marette, he has several books out there, but I'm sure you can find his theory online. What he says makes perfect sense.

[Mjcpr]

First thing I'd do is stop funding scholarships.

Then pay off the 9 percenter. :D

[OUDoc]

More important:
Why do you have 2 vehicles and who hates you so much that you got a 9.75% vehicle loan? Did you pee on the bank's rug? (That rug really tied the room together.)

[1stTimeCaller]

the scholly didn't cost me a dime. Apparently all kids in Chickasha don't need any extra money for school as nobody filled out the app. Or the POS counsellors didn't tell them about it.

[Frozen Sooner]

the guy that held the seminar is Bob Marette, he has several books out there, but I'm sure you can find his theory online. What he says makes perfect sense.

It does make sense in that it's the easiest plan to follow-so from the standpoint of what will end up getting the average person out of debt as opposed to what would theoretically be the better way it does make sense.

In this particular case, it appears that both Marette and I agree on which loans to pay off the fastest. I always go in with the assumption that if someone asks me for advice they're going to follow it. :) Probably a bad assumption.

[1stTimeCaller]

oops, it's not 9.75. That was for a little handshake type loan I had a few months ago.

The trailer has 44 months left and is 6.25, not 32 and 9.75.

To recap with correct figures:
44 mos @ 6.25
53 mos @ 6.5
360 mos @ 6.625

So the advice would be pay off the 6.5 then the 6.25 then the 6.625?

[85Sooner]

The 9.75% one.

Then the 53 month one.

Then the mortgage. While it's a higher rate than the other car loan, at least you get to write off the interest on that one.


I have been wondering about this.

When I was in banking, it was good to pay off the mortgage. But then mortgage rates were over 10% .At this point in time, I could pay off my house which is at 5.75% or keep on invested where I have been avging 12-13% annual return.

So would it be advisable to pay the mortgage anyway. I really would not save very much per month.

[Frozen Sooner]

oops, it's not 9.75. That was for a little handshake type loan I had a few months ago.

The trailer has 44 months left and is 6.25, not 32 and 9.75.

To recap with correct figures:
44 mos @ 6.25
53 mos @ 6.5
360 mos @ 6.625

So the advice would be pay off the 6.5 then the 6.25 then the 6.625?

Yep. Depending on your marginal tax rate, you're paying an effective rate of around 4.8% on the mortgage-plus, it's debt that is leveraging an investment.

[Frozen Sooner]

I have been wondering about this.

When I was in banking, it was good to pay off the mortgage. But then mortgage rates were over 10% .At this point in time, I could pay off my house which is at 5.75% or keep on invested where I have been avging 12-13% annual return.

So would it be advisable to pay the mortgage anyway. I really would not save very much per month.

How close are you to retirement?

[Vaevictis]

Just to complicate matters, which ones are assets that can be sold, and are you intending to sell any of them any time soon?

(Reason I ask is that depending on when you intend to sell the assets, and how quickly you can pay them off, it may make sense to take into account the rate of depreciation.)

[85Sooner]

How close are you to retirement?


I am 43.

[1stTimeCaller]

Well, on the 44 mos 6.25, my trailer, I have it on a three year depreciation schedule and I deduct 100% of my payments being as it is for work. On my truck, the 53 monther, I only deduct mileage used for work.

[FaninAma]

i get the whole argument of paying off the smallest.....but i'd pay off the one charging the highest interest

Agreed. You need to check out Dave Ramsey. The dude rocks. Pay off your highest interest debt especially if you aren't getting any tax break from it.

[yermom]

then i would think that the Truck should go first then... the effective rate would be less on the trailer at that point, or something

[OUDoc]

Just pay cash, Bruce.

[sanantoniosooner]

Agreed. You need to check out Dave Ramsey. The dude rocks. Pay off your highest interest debt especially if you aren't getting any tax break from it.
Dave Ramsey suggests the lowest balance first so that you can roll that payment into the next lowest balance.

http://www.daveramsey.com/the_truth_about/get_out_of_debt_4055.html.cfm

Debt Snowball - The Truth About How to Get Out of Debt

Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly.
Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.

The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.

Debt Snowball Plan
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted.

First accumulate $1,000 cash as an emergency fund. Then begin intensely getting rid of all debt (except the house) using my debt snowball plan. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.

Build Momentum
Redo this sheet each time you pay off a debt, so you can see how close you are getting to freedom. Keep the old sheets to wallpaper the bathroom in your new debt-free house. The “New Payment” is found by adding all the payments on the debts listed above that item to the payment you are working on, so you have compounding payments which will get you out of debt very quickly.

“Payments Remaining” is the number of payments remaining when you get down the snowball to that item. “Cumulative Payments” is the total payments needed, including the snowball, to pay off that item. In other words, this is your running total for “Payments Remaining.”

Debt Free!
You attack the smallest debt first, still maintaining minimum payments on everything else. Do what is necessary to focus your attention. Keep stepping up to the next larger bill. After the credit debt is taken care of you are ready for the next baby step in your Total Money Makeover.

I have been broke. I know how scared I felt, and I know how fast I wanted to get out of debt. I know how you feel, and I have learned that what really works is unbelievably fierce, focused intensity.

[Frozen Sooner]

Ah. I was not aware that you were writing off the payments on the trailer. Pay off the truck, then pay off the house.

[TheHumanAlphabet]

Dave Ramsey suggests the lowest balance first so that you can roll that payment into the next lowest balance.

http://www.daveramsey.com/the_truth_about/get_out_of_debt_4055.html.cfm

Debt Snowball - The Truth About How to Get Out of Debt

Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly.
Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.

The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.

Debt Snowball Plan
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted.

First accumulate $1,000 cash as an emergency fund. Then begin intensely getting rid of all debt (except the house) using my debt snowball plan. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.

Build Momentum
Redo this sheet each time you pay off a debt, so you can see how close you are getting to freedom. Keep the old sheets to wallpaper the bathroom in your new debt-free house. The “New Payment” is found by adding all the payments on the debts listed above that item to the payment you are working on, so you have compounding payments which will get you out of debt very quickly.

“Payments Remaining” is the number of payments remaining when you get down the snowball to that item. “Cumulative Payments” is the total payments needed, including the snowball, to pay off that item. In other words, this is your running total for “Payments Remaining.”

Debt Free!
You attack the smallest debt first, still maintaining minimum payments on everything else. Do what is necessary to focus your attention. Keep stepping up to the next larger bill. After the credit debt is taken care of you are ready for the next baby step in your Total Money Makeover.

I have been broke. I know how scared I felt, and I know how fast I wanted to get out of debt. I know how you feel, and I have learned that what really works is unbelievably fierce, focused intensity.

Wow, big add-on edit!!

Totally agree, been there done that. It works. It also feels good to pay off one debt then attack the other...The snowball feels really good when your putting big chunks onto the debt. In the end, the largest debt doesn't take so long to pay off as you are tackling it with large amounts of money.

[yermom]

yeah, but he shouldn't bother with the trailer for the same reason as the house in the above example

[Mjcpr]

the scholly didn't cost me a dime. Apparently all kids in Chickasha don't need any extra money for school as nobody filled out the app. Or the POS counsellors didn't tell them about it.

Can you email me the form then? I could use a couple grand, thx.

[FaninAma]

Dave Ramsey suggests the lowest balance first so that you can roll that payment into the next lowest balance.

http://www.daveramsey.com/the_truth_about/get_out_of_debt_4055.html.cfm

Debt Snowball - The Truth About How to Get Out of Debt

Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly.
Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.

The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.

Debt Snowball Plan
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted.

First accumulate $1,000 cash as an emergency fund. Then begin intensely getting rid of all debt (except the house) using my debt snowball plan. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.

Build Momentum
Redo this sheet each time you pay off a debt, so you can see how close you are getting to freedom. Keep the old sheets to wallpaper the bathroom in your new debt-free house. The “New Payment” is found by adding all the payments on the debts listed above that item to the payment you are working on, so you have compounding payments which will get you out of debt very quickly.

“Payments Remaining” is the number of payments remaining when you get down the snowball to that item. “Cumulative Payments” is the total payments needed, including the snowball, to pay off that item. In other words, this is your running total for “Payments Remaining.”

Debt Free!
You attack the smallest debt first, still maintaining minimum payments on everything else. Do what is necessary to focus your attention. Keep stepping up to the next larger bill. After the credit debt is taken care of you are ready for the next baby step in your Total Money Makeover.

I have been broke. I know how scared I felt, and I know how fast I wanted to get out of debt. I know how you feel, and I have learned that what really works is unbelievably fierce, focused intensity.

I agree with Dave. Perhaps I didn't read the inititial post well but if the debts are similiar in size then the higher interest debt would be the logical choice.

[Beef]

Only 1 grand for an emergency fund??? I want to live where emergencies only cost $1000.

[yermom]

heh, no doubt

[FaninAma]

Only 1 grand for an emergency fund??? I want to live where emergencies only cost $1000.

Eventually Dave says you should save enough in your emergency fund to be able to pay 3 to 6 months of your average cost of living. ie if you normally spend $3000 a month, ideally you should save $9,000 to $18,000 in an emergency fund.
http://www.daveramsey.com/media/pdf/fpu_monthly_cash_flow_plan_forms.pdf

[jk the sooner fan]

when i had some debt, i had a financial advisor put together two plans for me.....both plans had the similarity of putting $100 extra a month toward bills

plan A - pay the lowest one and then roll that amount over into the next lowest and so on and so on

plan 2 - pay the highest interest rate, etc etc etc

the difference between the two in time was only 3 months.....

i like dave ramsey but alot of what he says has a certain dr phil factor.....i.e. common friggin sense.....

[TheHumanAlphabet]

i like dave ramsey but alot of what he says has a certain dr phil factor.....i.e. common friggin sense.....

Agree, but apparently many people don't have the common sense when swamped, etc., or Dave wouldn't be making a killing...

In hindsight it is rather brainless, but in the midst of a "crisis" things aren't seen exactly for what they may be.

[sanantoniosooner]

Since FanInAma straightened beef out........I don't have to.

$1000 is just a starting point and quite an accomplishment for someone who has been up to their nipples in debt.

[1stTimeCaller]

The snowball feels really good...

I hope you're not talking about the same kind of snowball I'm thinking of. ;)

OK, now that we decided that I should pay off my truck first, how do I go about changing how much they take out of my checking account? Do just call GMAC and tell them what I want them to take out?

[yermom]

it depends on the bank

[sanantoniosooner]

geez dude.

You gonna need someone to come use your "one square" on you later?

helpless ninny.

[1stTimeCaller]

:les: NAME CALLING!!!!!!!!!

[sanantoniosooner]

Actually jk said that was your job title.