Okay Credit Counselors...

[ashbeeigh]

When I get my tax return (it'll be close to 2,000) I am planning on paying off credit cards. What order should I pay them off in?

I have:

1) Capital One card that was opened close to 203/4 balance of 460ish with a limit of 500 with an interest rate increasing in a few months due to the recession. (I think 20-22%? Not sure)

2) A WaMU card that is switching over to Chase in less then a month, hasn't been open for less then a year (opened for an emergency) has roughly the same balance as the Capital One Card. (This one may be 14%ish?)

3) An Old Navy Card with a balance of $404 with an interest rate of 22% with a limit that was reduced from $500 to $450 a few months ago. This one was opened like a year and a half ago.

Oh and then student loans that are deferred due to job loss a few months back. I'll start paying those back in a few months.

So, what do you all think? I've heard pay the one with the highest interest, pay the oldest (or newest), highest balance, etc. What's the best way to go about this?

[florige]

Hey Ash can I borrow 1500? I swear I will pay back every penny.

[jack sommerset]

Can u put the credit cards all on one account at a lower interest rate?

[FreeMason]

in my lowly opinion, smallest balance to highest balance.

It does not make sense mathematically, but if said person was a mathematical genius they would not go into debt in the first place. Spending is all behavioral, and doing it smallest to largest sum will help you with the psychological aspect in creating a snowball effect that will keep you motivated.

Again, this will be bashed but who cares; it works.

[manustarting2gd]

Lowest balance first then use the payment you would normally send to the lowest one and apply it to the largest. Look up the Snowball effect.

[CosmicCowboy]

Pay off Old Navy @ 22% and close it.

Pay off Capital One at 20-22% and close it.

Pay off the WAMU/Chase, keep it @ 14% and use it and make sure you are never late on a payment.

Bank the rest of the cash for padding.

[Blake]

I'm sure B2B will have the best, most detailed advice...

but I'm on board with paying off the lowest balance first which would leave you with two monthly payments in the fastest way possible.

Then this is just me, but I would pay the bare minimum on the highest card balance remaining while paying as much as I possibly could on that lower card each month to get myself down to just one card payment.

[CosmicCowboy]

uhhh....guys...she owes $1200 and is getting back $2000...she can pay them all off, keep one card for regular use, and put the $800 back for emergencies. This will help her credit score by reducing her available credit.

[CubanMustGo]

uhhh....guys...she owes $1200 and is getting back $2000...she can pay them all off and put the $800 back for emergencies,

Yeh, that confused me too. Why worry about the order when you can pay them all off?

[Blake]

uhhh....guys...she owes $1200 and is getting back $2000...she can pay them all off, keep one card for regular use, and put the $800 back for emergencies. This will help her credit score by reducing her available credit.

:lol

I failed to use my calculator and I assumed due to the nature of the thread that she didn't have enough to pay it all off.....

weird thread.

[BlackSwordsMan]

lol...ok

[BacktoBasics]

Not that Ash ever listens but.....

Pretty much what CC said.

Unless there is some kind of mathematical error in your money it seems like you can pay them all off. Do so and see if they'll lower your super high %'s. If you don't plan on paying them all off pay off the ones with the highest % rate first regardless of balance. 20ish%'s are insane pay them off and either negotiate a lower rate or close the accounts.

I understand its good to have available credit but rates like that are financially doomed regardless of the potential for FICO help.

I'm assuming the high % cards have big annual fees IE half of your available...so even if you pay them off and plan on never using the card you're going to end up paying big time interest on annual fees. Fuck that.

[tHe210rObInHoOd]

When I get my tax return (it'll be close to 2,000) I am planning on paying off credit cards. What order should I pay them off in?

I have:

1) Capital One card that was opened close to 203/4 balance of 460ish with a limit of 500 with an interest rate increasing in a few months due to the recession. (I think 20-22%? Not sure) Pay the card down at least $160. Any credit card with a balance of more than 60% the limit takes a hit on your credit.

2) A WaMU card that is switching over to Chase in less then a month, hasn't been open for less then a year (opened for an emergency) has roughly the same balance as the Capital One Card. (This one may be 14%ish?) Don't know your limit but pay down to at least 60% as well. (Chase interest rates have been going up)

3) An Old Navy Card with a balance of $404 with an interest rate of 22% with a limit that was reduced from $500 to $450 a few months ago. This one was opened like a year and a half ago. Pay this off and leave the account open. It's good to show that you have open accounts with zero balances versus a closed account. Unless you have zero percent on retail cards, stay away from opening these accounts period.

"Oh and then student loans that are deferred due to job loss a few months back. I'll start paying those back in a few months. Student loans typically have super low interest rates compared to credit cards so don't do anything with these until the others are taken care of.

As far as the rest of the cash is concerned, either pay down the higher interest cards more, or put it in a savings/m.m. account and leave it there for a rainy day. It's good to keep balances on credit accounts to build payment history. By the looks of it your debt situation is very manageable, but at the same time your limits are fairly low for some reason. Oh yea, never miss a payment or default. One little thing can cost you a ton of money when buying a large ticket item using credit.

So, what do you all think? I've heard pay the one with the highest interest, pay the oldest (or newest), highest balance, etc. What's the best way to go about this?"

[PM5K]

Close the Old Navy card for sure.

Consider closing one of the other two, that interest rate with Capital One is crazy, but at the same time I had a card with Chase and they wouldn't raise my limit over 200.00 and I'd had the card for two years, used it responsibly, and had a credit score in the 740 range. I called up Citibank and got a 3500.00 credit limit and closed the Chase immediately.

In other words, if you want to grow your credit Chase might not be that great, at the same time Capital One is screwing you on your interest rate, but Chase isn't...

I'd rather have a gas card than an Old Navy one, but I'm a man and you're a woman so maybe that's why.

[Blake]

When I get my tax return (it'll be close to 2,000) I am planning on paying off credit cards. What order should I pay them off in?

I have:

1) Capital One card that was opened close to 203/4 balance of 460ish with a limit of 500 with an interest rate increasing in a few months due to the recession. (I think 20-22%? Not sure) Pay the card down at least $160. Any credit card with a balance of more than 60% the limit takes a hit on your credit.

2) A WaMU card that is switching over to Chase in less then a month, hasn't been open for less then a year (opened for an emergency) has roughly the same balance as the Capital One Card. (This one may be 14%ish?) Don't know your limit but pay down to at least 60% as well. (Chase interest rates have been going up)

3) An Old Navy Card with a balance of $404 with an interest rate of 22% with a limit that was reduced from $500 to $450 a few months ago. This one was opened like a year and a half ago. Pay this off and leave the account open. It's good to show that you have open accounts with zero balances versus a closed account. Unless you have zero percent on retail cards, stay away from opening these accounts period.

"Oh and then student loans that are deferred due to job loss a few months back. I'll start paying those back in a few months. Student loans typically have super low interest rates compared to credit cards so don't do anything with these until the others are taken care of.

As far as the rest of the cash is concerned, either pay down the higher interest cards more, or put it in a savings/m.m. account and leave it there for a rainy day. It's good to keep balances on credit accounts to build payment history. By the looks of it your debt situation is very manageable, but at the same time your limits are fairly low for some reason. Oh yea, never miss a payment or default. One little thing can cost you a ton of money when buying a large ticket item using credit.

So, what do you all think? I've heard pay the one with the highest interest, pay the oldest (or newest), highest balance, etc. What's the best way to go about this?"

countdown to B2B response.....


5.......4.......3......

[Thunder Dan]

you should always pay the ones with the highest interest that have balances closes to their credit limit since a)higher interest rates pile up more fees, b)the closer your balance to your credit limit the more it hurts your FICO score

You should also possibly think about opening a saving account and saving $500 to fall back on and only that, not to spend or anything. That way if you get in a jam you don't grab a credit card

[CuckingFunt]

Pay off Old Navy @ 22% and close it.

Pay off Capital One at 20-22% and close it.

Pay off the WAMU/Chase, keep it @ 14% and use it and make sure you are never late on a payment.

Bank the rest of the cash for padding.

If you are disciplined, you can keep all three cards after you pay them off. You just can't carry a balance.

I paid everything off a couple years ago after an accident settlement, but I kept all my cards -- use them sparingly, pay them off monthly, and interest rates aren't even an issue.

[RandomGuy]

When I get my tax return (it'll be close to 2,000) I am planning on paying off credit cards. What order should I pay them off in?

I have:

1) Capital One card that was opened close to 203/4 balance of 460ish with a limit of 500 with an interest rate increasing in a few months due to the recession. (I think 20-22%? Not sure) Pay the card down at least $160. Any credit card with a balance of more than 60% the limit takes a hit on your credit.

2) A WaMU card that is switching over to Chase in less then a month, hasn't been open for less then a year (opened for an emergency) has roughly the same balance as the Capital One Card. (This one may be 14%ish?) Don't know your limit but pay down to at least 60% as well. (Chase interest rates have been going up)

3) An Old Navy Card with a balance of $404 with an interest rate of 22% with a limit that was reduced from $500 to $450 a few months ago. This one was opened like a year and a half ago. Pay this off and leave the account open. It's good to show that you have open accounts with zero balances versus a closed account. Unless you have zero percent on retail cards, stay away from opening these accounts period.

"Oh and then student loans that are deferred due to job loss a few months back. I'll start paying those back in a few months. Student loans typically have super low interest rates compared to credit cards so don't do anything with these until the others are taken care of.

As far as the rest of the cash is concerned, either pay down the higher interest cards more, or put it in a savings/m.m. account and leave it there for a rainy day. It's good to keep balances on credit accounts to build payment history. By the looks of it your debt situation is very manageable, but at the same time your limits are fairly low for some reason. Oh yea, never miss a payment or default. One little thing can cost you a ton of money when buying a large ticket item using credit.

So, what do you all think? I've heard pay the one with the highest interest, pay the oldest (or newest), highest balance, etc. What's the best way to go about this?"

That offers some pretty good advice.

[CuckingFunt]

Nice tag, by the way.

[RandomGuy]

When I get my tax return (it'll be close to 2,000) I am planning on paying off credit cards. What order should I pay them off in?

I have:

1) Capital One card that was opened close to 203/4 balance of 460ish with a limit of 500 with an interest rate increasing in a few months due to the recession. (I think 20-22%? Not sure)

2) A WaMU card that is switching over to Chase in less then a month, hasn't been open for less then a year (opened for an emergency) has roughly the same balance as the Capital One Card. (This one may be 14%ish?)

3) An Old Navy Card with a balance of $404 with an interest rate of 22% with a limit that was reduced from $500 to $450 a few months ago. This one was opened like a year and a half ago.

Oh and then student loans that are deferred due to job loss a few months back. I'll start paying those back in a few months.

So, what do you all think? I've heard pay the one with the highest interest, pay the oldest (or newest), highest balance, etc. What's the best way to go about this?

At the purest economic sense, one starts by paying minimum payments on all but the highest interest debt, and putting any free cash into the highest interest debt until it is paid off then moving on to the next one. I can show you how that will, all other things equal, keep the most money in your pocket.

That answer fails the reality test however for some rather practical reasons.

I need to go, but will finish this hopefully later tonight.

[BacktoBasics]

countdown to B2B response.....


5.......4.......3......

I'm not even going to dissect it.


If you are disciplined, you can keep all three cards after you pay them off. You just can't carry a balance.

I paid everything off a couple years ago after an accident settlement, but I kept all my cards -- use them sparingly, pay them off monthly, and interest rates aren't even an issue.

Well the real problem with the higher % rates is that there are likely high annual fees. So even if she doesn't use it she's gonna eat a ton of interest.

I'm willing to bet the average 400 dollar limit card has annual fees nearing 200 bucks....at 22% interest you can see how quickly that will pile up.

Also on that same note. Say she has a limit of 400...they'll drop that 200 dollar fee on her when she carries a balance over 200 so they can pop her with the over limit charge and potentially even higher rate.

I would flat not fuck with anything over 12%. I would also not fuck with anything over a 100.00 annual fee and thats if you really really really need the credit.

[BacktoBasics]

We can nitpick this to death but in simple terms.

She needs to pay the highest %'s off first and either negotiate a better % or cancel the card.

[CuckingFunt]

Well the real problem with the higher % rates is that there are likely high annual fees. So even if she doesn't use it she's gonna eat a ton of interest.

I'm willing to bet the average 400 dollar limit card has annual fees nearing 200 bucks....at 22% interest you can see how quickly that will pile up.

Also on that same note. Say she has a limit of 400...they'll drop that 200 dollar fee on her when she carries a balance over 200 so they can pop her with the over limit charge and potentially even higher rate.

I would flat not fuck with anything over 12%. I would also not fuck with anything over a 100.00 annual fee and thats if you really really really need the credit.

That's true. I wasn't thinking of the annual fees on the Capital One card when I posted.

Store credit cards don't have annual fees, though (at least, none of mine do) and are convenient to have if you don't want to deal with cash/check in the middle of a transaction or if you want access to certain sales prices. You just can't carry a balance on that shit, or you're screwed. The ones I have I use for convenience, but think of them like cash -- check's in the mail the day I get the bill.

[PM5K]

I have a CAP 1 and I don't think it has annual fees, nor does my Citi...

[CuckingFunt]

I have a CAP 1 and I don't think it has annual fees, nor does my Citi...

My Cap One card has annual fees of only about $25, but I know people with fees that are much higher. Just depends on the deal when you set it up.

[Thunder Dan]

wait, you say your getting $2,000 back...why don't you just pay off all your cards- you will have like $650 left right?

[ploto]

Adjust your W-4 so you have this money every month to pay down your debt and build up your savings. Getting a tax refund is not a good thing.

[ORION]

who wants to play hold em in the arcade?

[ashbeeigh]

Adjust your W-4 so you have this money every month to pay down your debt and build up your savings. Getting a tax refund is not a good thing.

:wtf says who? I'm not tax law guru, but I have taken some courses on taxes. If you claim 1 (which is single) you should have 10$ withheld from your taxes.

And this doesn't go for me, but depending on your life, you get lots of credits (which add up to more of a refund), 1,000 per child (up to 4 I believe) and credits for education, a first time home buyer credit (which is actually a loan..but could still count as a credit...)

We obviously have differences of opinions on lots of things ploto.

Oh, and b2b, none of those cards have annual fees. I would never get a card with an annual fee.

[ploto]

:wtf says who? I'm not tax law guru, but I have taken some courses on taxes.

Getting a tax refund is like letting the government have your money for free instead of you having it and at least earning interest on it. You want to pay in only what you will owe in the end. The education credit and standard child tax credit come off what you owe. If you owe nothing, you do not get to take them. I highly doubt you qualify for earned income credit or anything that gave you a $2000 refund after you owed no tax. Whoever told you overpaying and getting a refund is a good thing does not know what they are talking about.

[ploto]

Refunds: They're wrong!

It's hard to get that through to my clients. But refunds are bad.

Sure, it's exciting to get a check from the Internal Revenue Service. Well, actually, it's from the Treasury, but you know what I mean. That misses the point, however.

It's not like you're gaining anything. That money was always yours. The feds are just giving it back. And that's the point.

When you get a refund, what that really means is that you've given the federal government an interest-free loan. You're just getting your money back.

In fiscal 2007, 105.9 million Americans received tax-refund checks averaging $2,324 -- about the same as the IRS paid out the year before. Either way, when you do the math, that's a whole lot of interest-free dollars.

People just don't learn. They want that check from the government. But I can give you the same deal.

I hereby offer to allow anybody reading this to send me money. I'll take cash, checks, money orders, even food stamps. Send me as much as you want. And I promise -- on my word as MSN Money's tax expert -- that I'll send it back to you on April 15, without interest.

It sounds silly when you put it that way, doesn't it? But it's no different than getting a tax refund from the IRS.

Some people argue that refunds are a great way to save money. If they never see the dollars in their checks, it's easier to put aside money for, say, that big-screen plasma TV they've been drooling over.

Open your eyes, financial fool! That's what payroll savings deductions are designed to do. Buy savings bonds or, better yet, increase your retirement-plan contributions. Or just put an extra $50 per paycheck into a money-market fund...

http://articles.moneycentral.msn.com/Taxes/CutYourTaxes/WhyIHateIncomeTaxRefunds.aspx?page=1

[tlongII]

Getting a tax refund is like letting the government have your money for free instead of you having it and at least earning interest on it. You want to pay in only what you will owe in the end. The education credit and standard child tax credit come off what you owe. If you owe nothing, you do not get to take them. I highly doubt you qualify for earned income credit or anything that gave you a $2000 refund after you owed no tax. Whoever told you overpaying and getting a refund is a good thing does not know what they are talking about.

I disagree. If I have more cash on hand I'm more likely to spend. I'd rather get a refund. Besides, in today's economy you might lose money by putting it in the bank. :lol

[ashbeeigh]

I disagree. If I have more cash on hand I'm more likely to spend. I'd rather get a refund. Besides, in today's economy you might lose money by putting it in the bank. :lol

This is where I stand.

I mean, anyone can take as many deductions as they want on their i-9. Cool, not a big deal. But, then when they get their w-2 come January and they look at the amount withheld they freak out, if they don't remember (which I see all the time).

It's either spend (or save) the money now, or get it back in one lump sum.

I didn't mean to sound like an ass, ploto, and I don't doubt that whoever wrote that article you posted is 100% right, it's just two differing ways of saving/spending money..and I'm in tlong's area...I'd be more likely to spend the extra money when I got it (like on things I need) then paying off things like the credit card, which I plan on doing.

[TDMVPDPOY]

go rent a toyboy and enjoy the time....

[TDMVPDPOY]

I didn't mean to sound like an ass, ploto, and I don't doubt that whoever wrote that article you posted is 100% right, it's just two differing ways of saving/spending money..and I'm in tlong's area...I'd be more likely to spend the extra money when I got it (like on things I need) then paying off things like the credit card, which I plan on doing.

Doesnt make a difference, if you had 10k tax withheld, say you didnt pay-as-you-go on your payroll, and throw the 10k into a deposit fund @ 5% interest watever it is....you be earning what an extra $500...which will also be tax also.

i rather have the tax withheld, then havin money in the bank and spending it, when its tax time you dont have enough to pay the tax payable in a lump sum, then your in the shitters with a debt which is also charging you late fees and penalties.....

[Das Texan]

I wonder how many cards I have open currently?

I just got approved for a Chase Disney Rewards Card. ironic after Capital One declined me (hadnt happened in a while, cant wait to hear the reason for it also)

And regarding taxes....I only pay them on April 15. I make more than the penalty I have to pay, so fuck the government, they aint getting an interest free anything from me. I really shouldnt have to pay a damn penalty for not paying quarterly, but whatever.

I need to find a way around that also.

[TDMVPDPOY]

And regarding taxes....I only pay them on April 15. I make more than the penalty I have to pay, so fuck the government, they aint getting an interest free anything from me. I really shouldnt have to pay a damn penalty for not paying quarterly, but whatever.

I need to find a way around that also.

thats why the amount thats not been taxed yet, go invest it, make it work hard to earn that next dollar.

[Das Texan]

thats why the amount thats not been taxed yet, go invest it, make it work hard to earn that next dollar.


I should clarify, I make more in various investments than I would save by paying quarterly if that makes sense.

Say my penalty is 200 bucks.

I make 250, so i'm up 50. 50 is 50 more I didnt have.

[TDMVPDPOY]

I should clarify, I make more in various investments than I would save by paying quarterly if that makes sense.

Say my penalty is 200 bucks.

I make 250, so i'm up 50. 50 is 50 more I didnt have.

fuck lodging quarterly man, i hate that shit rule

reason being if your hiring an accountant to do them paperwork cost a fair bit doing it 4 times a year compared to doing it 1 time at the end of the financial year. Even though the accountants services are deductible, but fuck it....

[MannyIsGod]

Closing the accounts would be a flat out horrible idea and I'm suprised to hear people mention it in here.

Do NOT close them off, just pay them off and keep them with a zero balance. Actually even keeping a small balance is better than a zero balance in certain situations.

[MannyIsGod]

Refunds: They're wrong!

It's hard to get that through to my clients. But refunds are bad.

Sure, it's exciting to get a check from the Internal Revenue Service. Well, actually, it's from the Treasury, but you know what I mean. That misses the point, however.

It's not like you're gaining anything. That money was always yours. The feds are just giving it back. And that's the point.

When you get a refund, what that really means is that you've given the federal government an interest-free loan. You're just getting your money back.

In fiscal 2007, 105.9 million Americans received tax-refund checks averaging $2,324 -- about the same as the IRS paid out the year before. Either way, when you do the math, that's a whole lot of interest-free dollars.

People just don't learn. They want that check from the government. But I can give you the same deal.

I hereby offer to allow anybody reading this to send me money. I'll take cash, checks, money orders, even food stamps. Send me as much as you want. And I promise -- on my word as MSN Money's tax expert -- that I'll send it back to you on April 15, without interest.

It sounds silly when you put it that way, doesn't it? But it's no different than getting a tax refund from the IRS.

Some people argue that refunds are a great way to save money. If they never see the dollars in their checks, it's easier to put aside money for, say, that big-screen plasma TV they've been drooling over.

Open your eyes, financial fool! That's what payroll savings deductions are designed to do. Buy savings bonds or, better yet, increase your retirement-plan contributions. Or just put an extra $50 per paycheck into a money-market fund...

http://articles.moneycentral.msn.com/Taxes/CutYourTaxes/WhyIHateIncomeTaxRefunds.aspx?page=1

Obviously the best case scenario is to save the money instead of having the government over withdraw from your account. Now, that being said on something in the area of a 2k refund we're talking about a loss in interest of MAYBE 10-15 bucks annually.

Its not a big deal at all and some people are far less likely to save. For them losing out on the 10-15 dollars is actually the financially responsible route to take.

[PM5K]

Closing the accounts would be a flat out horrible idea and I'm suprised to hear people mention it in here.

Do NOT close them off, just pay them off and keep them with a zero balance. Actually even keeping a small balance is better than a zero balance in certain situations.

I guess ideally you'd try to get a higher limit and better interest rate, and if there are no annual fees I guess it doesn't hurt to keep them, but at some point when you have more than a couple of cards, with similar ages, it's not a big deal to drop one.

I didn't take any hit by dropping Chase, but it wasn't my oldest account.

[BacktoBasics]

Closing the accounts would be a flat out horrible idea and I'm suprised to hear people mention it in here.

Do NOT close them off, just pay them off and keep them with a zero balance. Actually even keeping a small balance is better than a zero balance in certain situations.You and I are on the same page here however if she had a 400 dollar limit and a 250 dollar annual charge then 22% interest isn't worth the benefit of keeping the account open and not using it. Thats what I was driving out. Most 22% type cards are of the high risk variety and carry hefty annual fees and charges.

I see she said she didn't have any annual fees so that's a good thing and with that in mind she can probably keep the account open however I would try and get a card with a lower rate to take its place. The meager benefit from having an additional 400 dollars of available credit pales in comparison to 22% on even the most minimal balances. No sense in "living with it" for 15-20 additional FICO points that she could make up in less than a years time with a better card.

[BacktoBasics]

I guess ideally you'd try to get a higher limit and better interest rate, and if there are no annual fees I guess it doesn't hurt to keep them, but at some point when you have more than a couple of cards, with similar ages, it's not a big deal to drop one.

I didn't take any hit by dropping Chase, but it wasn't my oldest account.Exactly. I only have about 1500 in total available revolving credit. I got popped with an unexpected 23.99% and promptly paid the card off and closed the account when they wouldn't come back down to my original 9.99. My FICO was relatively unaffected.

[RandomGuy]

At the purest economic sense, one starts by paying minimum payments on all but the highest interest debt, and putting any free cash into the highest interest debt until it is paid off then moving on to the next one. I can show you how that will, all other things equal, keep the most money in your pocket.

That answer fails the reality test however for some rather practical reasons.

I need to go, but will finish this hopefully later tonight.

Ok, so back to this.

Where this fails on a practical sense is that it pays no attention to cash flow.

What has been pointed out is that your refund will allow you to pay off this debt entirely, so the following answer assumes that the payment doesn't exist, but that you have some spare cash each month to send to them.

The best thing to do is to roll your extra cash into the smallest debt first until it is paid off, then move on.

This has the effect of freeing up cash flow, i.e "improves free cash flow". This means that if something comes up in any given month, you will be more likely to have cash to pay for it rather than having to borrow more.

You will end up paying slightly more in interest than simply throwing everything at the highest interest debt, but unless the differences are really great, or the amounts really large, it won't make that much difference. For most the free cash flow is more important from a practical sense than a few extra dollars at the end of the year.

[RandomGuy]

This is where I stand.

I mean, anyone can take as many deductions as they want on their i-9. Cool, not a big deal. But, then when they get their w-2 come January and they look at the amount withheld they freak out, if they don't remember (which I see all the time).

It's either spend (or save) the money now, or get it back in one lump sum.

I didn't mean to sound like an ass, ploto, and I don't doubt that whoever wrote that article you posted is 100% right, it's just two differing ways of saving/spending money..and I'm in tlong's area...I'd be more likely to spend the extra money when I got it (like on things I need) then paying off things like the credit card, which I plan on doing.

This is a case where the difference in the interest *IS* great.

One important concept from the accounting/finance disciplines that is relevant here is the marginal "cost of capital".

This is the cost of your options. On one hand, you can use any given spare dollar to pay off a credit card, at 22% interest, and on the other, you can essentially loan it to the government for free until you get your refund.

The difference here is 0-22%=-22%

If you are worried about having the money around to spend if you adjust your withholding allowances, then after you finish paying off the cards, do the following:

Set up an automatic purchase of "I series" savings bonds from the US Treasury. Basically you can debit any amount you want deducted automatically, and buy a US government bond that pays around 5%, currently 5.64%.

http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm

These bonds are 30 year bonds that can be redeemed, without penalty, after 5 years. If redeemed between 1 and 5 years, you lose 3 months worth of interest. You can't normally redeem it in under 12 months.

This is a better rate than any CD currently offered (see bankrate.com for samplings of bank rates), and is, barring the US government defaulting on its debt, risk-free.

You can buy up to $5000 per year of these bonds, $10,000 for a married couple.

This is a great way to put aside a small amount each month and earn some decent, GUARANTEED returns.

At the end of the bond, you get your capital back, and that transaction is tax-free, by the way.

If you max out your savings in these bonds, at the end of 30 years, you will end up owning $150,000 of this, and earning about $5,000 interest plus the cashout of the bonds, or roughly 5000 per year.

If you choose not to reinvest it, the cash flow will taper off, as you stop earning interest on the redeemed bonds, balanced out by any increases in prinicipal returns caused by the probable increases in the cap (assuming you always max out your purchases)

[RandomGuy]

This is a good automatic way to set up some savings, earn a decent return, and after a year or so, you pretty much have access to that cash at will, with only a modest penalty that disappears after 5 years.

The FIRST segment of ANY decent savings plan, even before considering retirement, is cash. I am big on cash, and recommend to anyone having a at least six months, if not a full year's worth of expenses sitting around in CD's or these types of bonds.

You can also, after you max this out, simply do a similar thing with CD's from your bank. Put a few bucks every month automatically into a CD with a bank, and have that cash flow as well.

Alternately you could simply do a monthly search/purchase from some website like bankrate.com, if you have the time to spend, and go that route. Usually, the less time you have to spend on a savings regimen, the more likely it is to be carried through, long term.

[RandomGuy]

Once you have the cash, then you go full bore into the stock market with a self-directed Roth IRA.

Yeah, that's right, I said the stock market. If your time horizon is anywhere past 10 years or so, buying stocks right now is a no-brainer.

If you aren't technically savvy, then simply go for big name companies that have a great history of paying dividends, like Coca-Cola. If you buy this stock through one of those IRA's you can automatically reinvest dividends at no charge.

The beauty of this, is that if the stock market goes down, and takes the dividend companies stock prices with it, then that is actually good for you, because you are able to buy more shares with your dividends. Look up "dollar cost averaging" for more details.

Mutual funds are ok, but the loads they put on them, both up front and hidden means that they have to make really great returns over time to make up for the management fees, and mutual funds overall don't really do that well when compared to the overall market.

[chreph]

So I don't think the obvious question has been addressed... why not pay ALL of the cards off immediately? :wtf

My wife and I made some STUPID decisions about 2 years ago, wound up $22K in debt, and I was pretty depressed about the situation. We consolidated everything to 2 cards (with 0% interest for a year) and then closed everything we had consolidated about 3-4 months later. We worked our asses off and made sacrifices to get out of debt and now that we're debt free, things are great. We got used to paying $400-$600 per month towards this debt (plus any bonuses, income tax refunds, etc) so now we're basically employing the same tactics (a little leeway of course) without the debt to pay ourselves what we were paying the creditors. We're getting a $10K 2 year CD next week to (almost) pre-pay for a trip to Italy in 2011 -our last "hurrah!" before we have kids- and will not ever put ourselves in that situation again. I use a low interest, fee-free rewards card to pay for everything possible and pay it off once every other week online so we can accumulate travel credits while paying for things we normally would use a check/debit card/cash for.

It took me 2 years and thousands upon thousands of dollars to acheive this and you don't want to commit ~60% of one income tax rebate?

[101A]

Pay off ALL revolving debt; carry a single card that gives a reward you value (took a Disney vacation "Free" two years ago by using the Disney card for 5 years - now I've got an Amazon card) - put everything you can on it, and NEVER carry a balance.

Wife and I were stupid for the first 8 years of our marriage, but have been revolving-debt free for a decade. Only money I will borrow is for a mortgage, or an auto (if I get a rate <5%); otherwise it's cash. Makes it much easier to sleep at night.

People who don't have any cards are missing the 1-3% reward you get from those cards.

[RandomGuy]

So I don't think the obvious question has been addressed... why not pay ALL of the cards off immediately? :wtf

My wife and I made some STUPID decisions about 2 years ago, wound up $22K in debt, and I was pretty depressed about the situation. We consolidated everything to 2 cards (with 0% interest for a year) and then closed everything we had consolidated about 3-4 months later. We worked our asses off and made sacrifices to get out of debt and now that we're debt free, things are great. We got used to paying $400-$600 per month towards this debt (plus any bonuses, income tax refunds, etc) so now we're basically employing the same tactics (a little leeway of course) without the debt to pay ourselves what we were paying the creditors. We're getting a $10K 2 year CD next week to (almost) pre-pay for a trip to Italy in 2011 -our last "hurrah!" before we have kids- and will not ever put ourselves in that situation again. I use a low interest, fee-free rewards card to pay for everything possible and pay it off once every other week online so we can accumulate travel credits while paying for things we normally would use a check/debit card/cash for.

It took me 2 years and thousands upon thousands of dollars to acheive this and you don't want to commit ~60% of one income tax rebate?

It actually was touched on.

She has enough money to pay them all off at once, and the consensus is that she do so.

You are doing something very right too.

My wife and I are in a similar position, due to a lot of factors, and are really making some sacrifices to pay down the debt. It is working, and we are really starting to see some results.

[MannyIsGod]

You and I are on the same page here however if she had a 400 dollar limit and a 250 dollar annual charge then 22% interest isn't worth the benefit of keeping the account open and not using it. Thats what I was driving out. Most 22% type cards are of the high risk variety and carry hefty annual fees and charges.

I see she said she didn't have any annual fees so that's a good thing and with that in mind she can probably keep the account open however I would try and get a card with a lower rate to take its place. The meager benefit from having an additional 400 dollars of available credit pales in comparison to 22% on even the most minimal balances. No sense in "living with it" for 15-20 additional FICO points that she could make up in less than a years time with a better card.

Holy shit I didn't realize she had a 250 annual charge!!! WTF?!??!?!?!?!?

[Sportcamper]

Date or marry a guy from So Cal & TELL HIM to pay off your credit cards….If that is not an option follow Cosmic's advise….

[CosmicCowboy]

Date or marry a guy from So Cal & TELL HIM to pay off your credit cards….If that is not an option follow Cosmic's advise….

Ashley's dolphin can't pay off her credit cards.

[ploto]

All this thread does is show me why so many people are in the financial mess they are. If you do not have enough self control to manage your money such that you need to over pay the IRS and have them save it for you then you have a problem. You can even set up direct deposit to a savings plan if you do not ever want to see that money. Not only are you losing out on the interest you could make with that money, in the meantime you are also paying 22% interest on credit card balances that you could have paid of with that money. In addition, why do you even have over $400 at 22% on a balance at Old Navy in the first place?

[Drachen]

Ashbeigh - In response to your initial question: I am a little confused. You will have far more money in your tax refund than you will need to pay off your cards. I would pay them all off, and bank (I said BANK) the remaining money. Worry about your student loans when you and your lender agree to take the loans out of deferrment. I assume your agreement is that once you have another job, they will come out of deferrment and you will be able to begin paying that money back, but correct me if I am wrong. Anyway, if I, and many of the rest of the posters here are missing something, and you cannot pay all of your cards off in their entirety, then you should absolutely pay off the cards with the higher interest rates first. This will keep the most money in your pocket over the long run. If you had your choice of taking out a loan at 14% and a loan at 22% which would you choose?? If you pay off the 22% card, you are effectively choosing a 14% loan. Make sense?
As far as your credit score is concerned, regardless of what card you pay first, it will have the same effect on your credit score. If you pay $450 to card A at 22% that you have had for 12 years, it will have the same effect as if you paid $450 to card B at 12% that you have had for 6 mos. The reason for this is that as far as credit cards are concerned, their effect on your credit score is based mostly on your credit utilization. This is the percentage of your total available credit that you are using. For example, it looks like you have 1500 total credit limits among your cards (3 x $500). Of that 1500 you are using about $1300 (about 450+450+400 if I read correctly). So you take $1300 used and divide by $1500 available and you will find that you are utilizing almost 87% of your available credit. This is not good as far as your credit score is concerned. Ideally you will use between 1 and 9% of your available credit because this shows the credit bureaus that you are able to manage your credit (not using cards shows no management skills), yet you are not relying on them. You will receive a pretty big bump by bringing your utilization under 50%, then under 30% another decent bump on down to below 10%. Another thing that this means to you is that if you close a card, that it will negatively affect your credit score because you have lower available credit to offset the credit that you are using. (example if you have 3 cards with credit limits of 500 and a balance of 500 between all three of them, then your credit utilization is 33%, but if you close one of those cards without paying anything, you now have 1000 available credit and 500 of balance, a 50% utilization. Closing a card will also eventually negatively affect your credit score because one of the score determinants is average age of accounts.
Ok, I may have gone a little overboard, I am sorry if I have, but there is the info you can use to make your decision. I hope it helps.

[MannyIsGod]

250 dollar annual fee!! I'm still blown away by that. Why the fuck would anyone pay that?

[ashbeeigh]

250 dollar annual fee!! I'm still blown away by that. Why the fuck would anyone pay that?

fuckin' aye...I don't! None of my cards have any annual fees. $250 is outrageous.

[MannyIsGod]

fuckin' aye...I don't! None of my cards have any annual fees. $250 is outrageous.

Ok that makes more sense then. That sounds pretty fucking insane.

[BacktoBasics]

Lots of people with marginal to questionable credit can obtain a high interest rate card...and along with the high rate you get high annual fees. 250 might be a bit of an exaggeration but I must have sifted through 5-6 cards with annual fees in the 150 range before settling in on what I have. Its a reality and most people don't realize the annuals because all they can think about is getting a 500 dollar card.

[DisgruntledLionFan#54,927]

250 dollar annual fee!! I'm still blown away by that. Why the fuck would anyone pay that?

Same reason why some people pay over $1000/month for a new, shiny F-150.

It's not that hard to have and maintain good/great credit. Stop buying shit you couldn't otherwise pay for with cash and pay your bills on time.

[mookie2001]

with an interest rate increasing in a few months due to the recession.
rofl