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Arya
Joined: 19 Aug 2009
Arya's page
Posts: 46
1190 Magic Points
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Subject: How To Handle Multiple Debts
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Wed Sep 30, 2009 5:41 pm
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| I am trying to pay off multiple credit cards and student loans. I am not sure which is better to pay off first: credit cards still with the actual credit card company (discover, chase, etc) with a larger balance ($2000-$4000 range) or smaller debts ($400-$500 range) that have gone to collections. Which should I attack first? |
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Justin
Joined: 17 Jul 2006
Justin's page
Posts: 1240
28942 Magic Points
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Thu Oct 01, 2009 7:21 am
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Hi Arya,
Well, it is nice to know that you are making an endeavor to pay your debts off. I believe this will help you to get rid of your debts quickly. I would suggest you to begin with the debts with the highest interest rates. Start by paying the debts with the highest rate of interest and continue like this till you reach the one with the lowest rate of interest. This will lighten your burden.
However, if you want to give a boost to your credit score, then pay the debts which have small amounts. This will help you improve your credit score since the report will reflect zero balance against the credit account. Hence, you have to take the call depending on your monetary situation.
_________________
All the Best 
Justin |
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fireyone
Joined: 26 Feb 2008
fireyone's page
Posts: 4285
127 Magic Points
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Fri Oct 02, 2009 1:52 am
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| Its good to see people trying to improve their credit. My suggestion would be to try and get rid of the debts in collection first since they could possibly come back and sue you, attach your wages or other bank accounts. Try saking them to settle the debts for less and also for a pay for delete. A lot of companies will settle debts for less because it is cheaper than going to court and a lot less hassle. It also puts more money in their pocket in the long run because if they were to sell the debt they would only get pennies on the dollar for it. good luck. |
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jassica
Joined: 13 Sep 2009
jassica's page
Posts: 76
10 Magic Points
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Fri Oct 02, 2009 6:34 pm
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Debt planning is very important and one should do it very wisely. So strategic planning s required. You are taking control of the situation rather than gliding along and hoping everything works out for the best. This attitude combined with planning will bring you to debt freedom in the shortest time and with the lowest cost.
I have two tactics for you to consider. But before I get into the specifics, I think you have several issues that may be in conflict. The two tactics are-
1)interest expense.
2)credit rating.
1) Interest expenses -
Let us talk about the "interest first" approach. You could pay off the highest interest accounts first. By paying as much as possible on the highest interest account -– and at least the minimum monthly payments on the remaining accounts –- you limit your exposure to expensive interest payments that do nothing to lower your principle balance. After paying off the highest interest rate account, apply that payment to the account with next highest rate. Continue in this manner until all of the accounts are paid off.
2)Credit rating -
Now let us consider the "credit rating first" approach. When you have multiple accounts with varying levels of debt, you could tackle the account with the least amount of debt first. This will be the easiest to pay off (providing some psychological benefit) and provides a slight bump to your credit score by showing recent account activity resulting in a zero balance. If you have multiple accounts with small balances, consider knocking off the smallest first to give your FICO score a lift.
You have an interesting twist to consider with the accounts that have gone to collections. These accounts are damaging your credit score, so it is tempting to pay them off, not only because you owe the balance, but because of the damage they are causing. Because these are in collections, you may want to consider negotiating with each creditor about a lump-sum settlement that is less than the actual balance. Such a settlement will cause even greater harm to your credit score, but will save you money that you can apply to other balances.
What approach you take depends on your goals. If you hope to get a mortgage or want to qualify for a low-interest loan in the near future, then you want to preserve your credit score at all costs. However, if your near-term credit score is not an issue for you, then play hardball with your accounts in collections, and pay down your highest-interest balances first. |
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Margaret
Joined: 13 Nov 2009
Margaret's page
Posts: 78
-146 Magic Points
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Sun Nov 15, 2009 12:03 pm
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| You are wise to attack your debt strategically. You are taking control of the situation rather than gliding along and hoping everything works out for the best. This attitude combined with planning will bring you to debt freedom in the shortest time and with the lowest cost |
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