What should I tackle first?

**lhsordel** · 06-20-2006, 12:51 PM

Hey Everyone,

I've been lurking around (and posting a little) for a couple of months now. I've worked at cutting back and trying to not use the credit cards and have even been able to put a little towards paying off the first of several loans that I am working towards paying off.

My first question is what do I pay off first? Should I pay off the credit card and then work towards the loans or should I pay off the loans first? I'm feeling a little overwhelmed because once I wrote everything down that I owed everyone, I was shocked to see what it added up to. At that point, I just wanted to pay off everything ASAP. The reality is that I can't do that. I am trying to stay focused on one thing at a time but other than comparing interest rates, how do you decide what gets tackled first?

I do have $2,000 in my EF and wonder if I should use that to payoff my credit card which means I have to start over on the EF, or do I just need to be patient and work on one thing at a time?

Thanks for your help.

**bee9984** · 06-20-2006, 01:01 PM

Well I would pay off the smallest balance first, whether it be a credit card or a loan and then take the money which was going onto that debt and snowball it (combine it) with the balance you are paying on your next smallest debt....I personally wouldn`t be looking to pay the debt with the highest interest/ amount owed first as I would rather see some of the debt dissapearing sooner than later. With each loan/credit card you pay off , keep using that payment which you were paying and put that also towards the next debt etc.

You should leave something in your emergency fund as if an emergency comes up say insurance deductable etc you will feel much better knowing you would have that covered. I would keep $1000 minimum in the emergency fund as most emergencys are usually under that, dental,insurances etc.

Have you read Dave Ramseys Total Money Make Over? That is a good place to start......and you will find zillions and zillions of awesome information here on the boards at FV.....check out all of the back posts and threads

**bee9984** · 06-20-2006, 01:09 PM

P.S while you are snowballing, I would just snowball on the one debt and pay the minimum payments on the others and then once that is paid focus on the next lowest debt with the extra money by snowballing and pay minimum payments on the rest...etc.

Hope I made sense

**PrairieRose** · 06-20-2006, 03:57 PM

Bee offers you great advice and I agree with starting with the loan (credit card or otherwise) with the smallest balance. It sorta jump starts you on your way. Just be certain sure not cheat and let yourself feel as if you have "extra" money once you get one paid off. That money rolls over onto another payment and it really gets you fired up! Have fun, it's a journey just like everything else in life.

**autumnlynn** · 06-20-2006, 05:37 PM

I agree that the smallest balance should be paid off first. When you pay off that first debt, it really exhilirates you to keep going!!!

**SammeyG** · 06-20-2006, 07:22 PM

I agree with all of the other post. I learned from them. I work two jobs. My 40 hour workweek job goes into my checking account. Then with my other job where I work 10 to 15 hours a week I put that into a savings account. After I have that built up over $1,000 then I take a couple hundred out to pay on one credit card that has the lowest amount on it. Then I do the snowballing effect from there.

**lhsordel** · 06-21-2006, 07:56 AM

Thanks for all the great advice. I'll start focusing on the one with the smallest balance and get the snowball rolling. I just bought Debt-Proof Living by Mary Hunt to read because I've surfed her website and liked the info and articles that I read. I'll hit the library for Dave Ramsey's book after I finish this one.

**christina33** · 06-21-2006, 01:10 PM

Start with the smallest first ( this is an excellent ego boost !!)
After that look at what remains and the interest rates. If the credit cards are carrying a higher interest rate, I would pay these off first since the finance charges are compounded. With loans, the interests payments are usually simple interest and you know when you took out the loan the amount of interest you will pay.
Since you never mentioned the type of loans you have, whether they are adjustable rate ( interest rates are rising so you will pay more) or whether the loan company will allow you to pay a certain portion towards the principal and interest etc. You may want to look into this before deciding.

You EF should be determine by what is going on in your life etc ( if you expect to loose or leave job.. existing medical problems that pop up from time to time) .. will dictate how much you need to keep on hand. I know DAve Ramsey say $1000.00 but I think you should decide your comfort level.

Hope all works out

**Valerie in WA** · 06-21-2006, 09:44 PM

I'm going to be the lone voice of dissent here.

If you are having problems meeting the miniumum monthly payments, I would agree that it's wise to focus your efforts and the bill with the smallest balance.

However, if you are NOT having problems making your minimums, I think you should first pay down the highest interest rate loan. Plain and simple that loan is costing you the most money. Doesn't matter to me - IMHO - how 'good' it feels to pay off a small bill, if the big bill has a huge interest rate.

Here's a sample of bills.
$3000 @ 4%
$4000 @ 19%
$100000 @ 6% (but it's a mortgage, so it's tax deductible.)
Paying down the 19% bill first is the wisest choice. If it sits there while you whittle down the $3000 debt, the interest (@ 19%) is really going to rack up!

OTOH, if the sample were:
$300 @ 4%
$4000 @ 19%
$100000 @ 6% (mortgage)
And you were paying $200 a month total to both debts, it wouldn't make much difference.

See what I mean?

Regarding the EF, if you are in good health and have a secure job and could - in times of trouble - lean on a SO's income or help from your family, I think $1000 is adequate for now. Make sure you aren't depending on that $1000 to pay your car insurance or routine office visit co-pays. That $1000 is for if you break your leg or your car's engine catches fire. Then spend the other $1000 and your change jar toward your highest-interest debt.

**Jenna** · 06-26-2006, 08:34 PM

My answer would depend upon the APR's, the utilization %'s of your c/c's, the type of debts, and minimum monthly payments - oh, and the number of debts.

Also, as someone mentioned - your current lifestyle -- ie home owner/renter, single/married, kids/no kids, job security.

A single renter w/no kids is going to need a different e-fund than another person w/house or kids.