Question Dh & I are pondering...

**Judi Dial** · 10-19-2010, 08:39 PM

We stand to get a tax refund. It's enough to pay off a cc entirely and leave a couple hundred bucks. That cc has highish interest, but we've been paying it down and not using it for years, so the balance is low enough we should pay it off in < 12 months anyway.

We also have a HIGH interest large debt cc and the money would cut it by about 1/3.

We've talked about:

1)Paying off cc1 entirely.

2)Paying cc2 all of the refund.

3)Paying cc2 1/2 the money and putting the other half into the emergency fund (still only $1,000).

We have 2 other cc bills, both we don't owe as much as the high interest/high balance account.

We have acquired a small loan for DH's motorcycle this past month and we also have a car payment which we pay on each week.

I'll tell you up front, we're both inclined to throw it at the high interest/high balance account.

Agree? Disagree?

Judi

**mamachop** · 10-19-2010, 09:46 PM

Financial Planners usually say to pay the small balances or what you can pay off entirely first.

I think I would tend to agree with you that I would pay the one with the highest interest rate first. You could use what you save in interest alone to double up payments and bring the balance down faster.

Best of luck whichever way you decide to go.

**Luv2BeFrugal** · 10-20-2010, 04:35 AM

I think I'd pay off cc#1 in full so that it was "off my plate" and I could aim more at that big cc.

Good luck! =) Whatever you choose, it'll be great progress!

**Siebrie** · 10-20-2010, 05:59 AM

I'd aim for the highest or highish cc.

**Russ** · 10-20-2010, 07:10 AM

Do the math. Figure out which way pays things down the fastest. And no adding more debt.

**nodmicks** · 10-20-2010, 07:35 AM

For me it would depend on exactly how high the interest rate was on the higher interest rate card. If it is quite a bit higher that is the one I would pay. If it is just 1-2% higher I'd pay off the smaller one in full Just for the sense of completion.

I think Russ's idea of figuring out all the payoff scenarios with the actual numbers and %'s is a great idea.

**Josephhgoins** · 10-20-2010, 07:57 AM

I always pay the highest interest rate first. It just frees up that much more money to go to debt next month.

**Greebo** · 10-20-2010, 08:28 AM

I think it's of more importance that you adjust your withholding to stop getting such a large tax refund.

Otherwise you're just giving Uncle Sam a zero interest 12 month loan on YOUR MONEY.

**Judi Dial** · 10-20-2010, 08:28 AM

Originally Posted by Russ

Do the math. Figure out which way pays things down the fastest. And no adding more debt.

I have this problem, I have this husband who thinks we're "broke" all the time...no matter how much we have in the bank or pay off. I am working on it. I thought when he was going to get the bike that he was going to pay cash (it would make for a tight 1/2 month and take the emergency fund, but it can be replaced) but no. He got an 18 month loan and intends to throw $$$ at it as fast as he feels we can. Why we can't do that with the large balance/large intereste cc is beyond me, but that's an argument I'll have with him that will only fly AFTER we pay off the bike. I've been married to this guy for 30 years and I know how his mind works by now!

Judi

**mslolsalot** · 10-20-2010, 08:35 AM

Originally Posted by Greebo

I think it's of more importance that you adjust your withholding to stop getting such a large tax refund.

Otherwise you're just giving Uncle Sam a zero interest 12 month loan on YOUR MONEY.

I'm totally with Greebo on this. If you'd had that money monthly throughout the year your cc1 would already be paid and you would have saved the extra months worth of interest.

Don't be afraid to reduce tax withheld at the source if you tend to get a large refund!

**Russ** · 10-20-2010, 08:38 AM

Originally Posted by Judi Dial

I have this problem, I have this husband who thinks we're "broke" all the time...no matter how much we have in the bank or pay off. I am working on it. I thought when he was going to get the bike that he was going to pay cash (it would make for a tight 1/2 month and take the emergency fund, but it can be replaced) but no. He got an 18 month loan and intends to throw $$$ at it as fast as he feels we can. Why we can't do that with the large balance/large intereste cc is beyond me, but that's an argument I'll have with him that will only fly AFTER we pay off the bike. I've been married to this guy for 30 years and I know how his mind works by now!

Judi

Your husband and my wife MUST be related.

**littleplum** · 10-20-2010, 04:53 PM

Originally Posted by mslolsalot

I'm totally with Greebo on this. If you'd had that money monthly throughout the year your cc1 would already be paid and you would have saved the extra months worth of interest.

Don't be afraid to reduce tax withheld at the source if you tend to get a large refund!

Not necessarily. Some refundable credits are not always recoverable through payroll. My sister is self employed (1099 contract employee) and her income is so low that she maxes out the EITC every year, in addition to the child tax credit and additional child tax credit, which are all refundable. Because she's a 1099 "employee" she can't take the Advance EITC. So, she gets a huge income tax refund, without ever actually paying any federal income tax through the year.

It also can be difficult to figure out what your tax burden is going to be at the end of the year if you don't have a rock steady income. We had ours all figured out based on last year's return, and then I was let go from my job in April.

My husband works a lot of overtime SOMETIMES. If we adjusted for the best case scenario on his OT, and he doesn't collect lots of it? We will under-withhold. So, we base the withholding on his base pay, and we get tons withheld on his high OT checks.

Last year (TY2009), we put new windows in our house that were eligible for the $1500 tax credit. We had the Making Work Pay credit. We had withholding of $9,400 but only owed $5400, so we had a refund of $4800.

The year before last (TY2008), we had a $12,000 refund. It was our second year filing as a married couple, I had a significant drop in income (was laid off from a full time job and then found a part time job), and then we bought a house eligible for the $8,000 tax rebate, and amended our return.

**Nishu** · 10-20-2010, 07:29 PM

Originally Posted by littleplum

Not necessarily. Some refundable credits are not always recoverable through payroll. My sister is self employed (1099 contract employee) and her income is so low that she maxes out the EITC every year, in addition to the child tax credit and additional child tax credit, which are all refundable. Because she's a 1099 "employee" she can't take the Advance EITC. So, she gets a huge income tax refund, without ever actually paying any federal income tax through the year.

OP should still double check though. Obviously if a person is getting a traditional paycheck then the old rule still applies, that you need to claim what you can through the year rather than at tax time. With your sister it kinda of sounds like an income level issue rather than an issue with specific taxes.

Nm on the rest of that stuff I just wrote, I think I screwed it up.

**Nishu** · 10-20-2010, 07:39 PM

Wait, yeah, I was right the first time.

Non-Refundable Tax Credit Definition

Non-refundable tax credits. Sometimes we lose twice by getting a refund at the end of the year. Once by lost interest and secondly by not being able to take advantage of non-refundable tax credits. These are tax credits that can't be paid back to you in the form of a refund. If all said in done you get $2000 back at the end of the year and are eligible for a $300 nr tax credit, that 300 just disappears. On the other hand, if you owe 2000 and are eligible for a 300 nonrefundable credit, your tax liability is reduced to 1700.

I used to think that not including interest it would be the same amount either way, but that's not always true.

Op, we are kinda in the same boat. My husband is getting a bonus within the next couple weeks and we had to decide which ones to pay off. I was leaning toward the smaller ones, but eventually we decided to go with the higher interest ones.