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can someone help me prioritize this list of debts I am trying to pay off?

We will be getting $5713 as a tax return. I plan on paying off one of our cars, a couple credit cards, and a signature loan which will leave us with $1000- $1500 left. Where I am stuck is we have an account with a collections agency for medical expenses that the reamianing balance is just over $1000. We have been making payments per the agreement we have with them and we can continue to be in good standing with them as long as we are making the payments for the next 12 months. We also have a credit card with a limit of $3000 and it's pretty close to maxed out. So for those of you who know a lot about building credit and prioritizing debt pay offs can you tell me from a bank or credit reports point of view which would be the better way to go? The other option we could potentially have is to use a kwik cash line of credit to pay off the collections so all our debt would be with the same bank but the interest rate is really cont

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Anonymous

Asked by Anonymous at 11:03 AM on Jan. 16, 2010 in Money & Work

Answers (21)
  • high so I just don't know which is worse to have a collections account open on youre credit report or to have lines of credit near their max. Whatever way we go we'll be able to pay it all off faster since I am working again but I want to get us on the right track as fast as possible.
    Anonymous

    Answer by Anonymous at 11:04 AM on Jan. 16, 2010

  • Can you pm me with your exact list - and interest rates? I can help you prioritize them that way with anonymity.
    RutterMama

    Answer by RutterMama at 11:05 AM on Jan. 16, 2010

  • I think you should put some down on your credit card to have money avail for EMERGENCIES and isn't that tough!!!!

    Your car payments - why are you paying it off, what's left on it? you can pay it off faster and less inerest by adding after your regular monthly payment 50 dollars of a bit less even or a bit more specifically to your princi. The faster you pay off princi. is the less interest you owe on anything.

    The faster thing you should pay off by putting a fair amount of money on it should be your credit card - that is what can affect most badly your credit.

    Your car is good to have showing you're paying on,makn extr princi. paym.

    The collection agency sounds good -they're not charging you interest right? When you can after you've made your regular monthly payment, randomly now and then send in a bit extra - thirty dollars even twenty or ten -It shows you are attentive to the debt and are taking responsiblity for.
    lfl

    Answer by lfl at 11:12 AM on Jan. 16, 2010

  • You could completely pay off a smaller amount one or put it all on one that has the highest interest. Good luck.
    QandA

    Answer by QandA at 11:17 AM on Jan. 16, 2010

  • A maxed out credit card is not good for your credit score or for when lenders look at your report. Too much available credit (in the form of credit cards) is bad too.

    I agree with paying the car as agreed monthly, it really helps with history. We owe a couple thousand on one of our cars and will continue to make the payments.

    Credit cards with higher interest rates close to being maxed out are better off getting paid off in one lump sum. Then, to keep up payment history, use it once a month and pay off the balance when due.

    As far as the collection goes, I would send a letter and tell them that you will pay if off all at once if they send a letter with an agreement for deletion. You don't want a paid collection and they want it paid so most CA's will agree to delete the collection from your credit reports if you pay off all at once.

    So credit card, collection, and then whatever else.
    all4mymarine

    Answer by all4mymarine at 11:32 AM on Jan. 16, 2010

  • I would suggest a professional help with this. Maybe you can find one here on Cafemom who will mentor you.

    Best of luck.
    IraqiVetWife

    Answer by IraqiVetWife at 11:36 AM on Jan. 16, 2010

  • You need to do what is called the "snowball effect". Which is where you payoff the smallest debt first, then take the money you were paying on that debt and apply it towards the next smallest debt, then so and so on. Read Dave Ramseys book Financial Peace.
    kc932

    Answer by kc932 at 11:40 AM on Jan. 16, 2010

  • DO not use kwik cash. You have enough from your tax refund to pay off the important stuff. Financial advisors are saying that in this economy, it's better to save what money you can and pay min on your debts. You need cash now. You don't have to pay off ALL of your credit card. You can choose to pay off 3/4 or 1/2. But get that collection off your report! A paid collection is just a damaging as an unpaid. Put whatever you feel comfortable for emergencies in your account and leave it there for emergencies. Personally, I wouldn't pay just the minimum unless I was in a bad situation. If you already have an emergency fund, pay credit card off completely. Do whatever you feel is comfortable for your situation. Having debt is not all bad. It's just the amount of debt and how manageable it is.

    http://www.rebuildcreditscores.com/Sample_Pay_for_Deletions_Letter.html
    http://www.rebuildcreditscores.com/Deletions.html

    Hope this helps!
    all4mymarine

    Answer by all4mymarine at 11:41 AM on Jan. 16, 2010

  • Don't use loans to pay off loans. Makes no sense. If you pay off a credit card, DON'T USE IT AGAIN. My suggestion would be to keep the rest as an emergency fund. An emergency is not a sale. An emergency is the car needing a repair or the water heater breaking.
    whiteroses82

    Answer by whiteroses82 at 11:47 AM on Jan. 16, 2010

  • kc932 we have been doing the debt snowball and I am hoping to use this return to gain even more momentum having everything but the collection and credit card paid off will give us the ability to put $700 a month towards our remaining debt which is a car we just got in July the collections account and the credit card
    katiekruschke

    Answer by katiekruschke at 11:48 AM on Jan. 16, 2010

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