What would you do in my situation?

Jdogstyle · #1 (**permalink**) 07-05-2007, 02:47 AM

I am currently in debt about $5,000. with a combined total of 3 credit cards. none of the cards are maxed out, their about at 50% credit limit each. Now thats not alot of money but, I missed a couple of payments, not do to finance problems, due to my lack of organization and being dumb! So my interest rates went up on all 3 cards. so to sum it all up I pay a total of about $130 a month in finance charges, but i pay close to $500 a month toward my CC bill every month.
Now I am going to be recieving about $6,000 in cold hard cash in the next month.

Should I:

A. Pay off my debt in one clean swipe.
B. Pay it off in a couple of big chunks.
C. Put the money in a Savings account, and just continue to pay my monthly CC bill on time every month. ( because I could always have that cash to put towards a DP on a piece of land or something later in life)
D. Pay off the highest balance one which is about $3,000 and keep the rest cash in bank.

OR
E. Max out all my credit cards, apply for more credit cards and max them out, screw the credit card companies, sell off all the stuff at 50% off, then fly off to Mexico where I can retire as a bean farmer!

Mark A · #2 (**permalink**) 07-05-2007, 09:37 AM

Pay off your debt, then put the rest in an account where you can't get to it.

Paying 21% interest is dumb when you can only earn 5-10% returns on that money.

BillR · #3 (**permalink**) 07-05-2007, 04:51 PM

Use the three step plan:

1.) Cut up the credit cards.
2.) Pay off the debt
3.) Take $50 and buy yourself something as a reward; throw the other $950 into a 6 month CD ASAP until you decide what a good way to invest it is.

Jdogstyle · #4 (**permalink**) 07-05-2007, 11:29 PM

Thanks, I was gonna pay off half and keep the rest in an account, becuase its really hard for me to save money, I have full blown "Consumer Disease". I always tell myself, "Ah you only live once" right before I swipe the card!

But I will definatley pay off everything and just try to save my extra money instaed of buying crap.

Mark A · #5 (**permalink**) 07-06-2007, 12:02 AM

Remember, you may only live once, but in this day and age you will live for a long time, say you live to 80, and you are only 20 years old. You have 3/4 of your life to live, how would you like to reward yourself when you're sixty by not blowing your money on crap today?

Mynion · #6 (**permalink**) 07-06-2007, 03:51 AM

Quote:

Originally Posted by BillR

Use the three step plan:

1.) Cut up the credit cards.
2.) Pay off the debt
3.) Take $50 and buy yourself something as a reward; throw the other $950 into a 6 month CD ASAP until you decide what a good way to invest it is.

Love this answer!

Mynion · #7 (**permalink**) 07-06-2007, 03:56 AM

I'll actually add that I probably wouldn't cut up the credit cards...

If there is no annual fee, use them to pay one bill each month. Write a check to the credit card company immediately and send it in. This will keep your credit history sharp.

I'm not a credit expert, but my understanding is that closing accounts may be seen as negative. Also, if an emergency comes up, the credit cards can be effective. Not to mention, you may not qualify for a credit card if you try to get one later when you actually do need one.

But definitely pay off the debt, reward yourself, and put the balance into a safe investment until you learn more about what you want to do with it.

I'd probably use a money market fund as opposed to the 6-month CD, too. The money market is more liquid for emergencies, and pays a competitive rate, maybe even higher. You need to start building an emergency fund so you won't need the credit cards, then you can work on your other goals.

BillR · #8 (**permalink**) 07-07-2007, 05:29 PM

Quote:

Originally Posted by Mynion

I'd probably use a money market fund as opposed to the 6-month CD, too. The money market is more liquid for emergencies, and pays a competitive rate, maybe even higher.

There's nothing wrong with this approach either - the real key is to know your personality well.

My personality, for example, tends to get attached to things that I have had for a while. And if I had no money in savings and then have $1000 in savings for 6 months I wouldn't want to spend it.

This probably works different for everyone - but the real key to any and all of this is knowing who you are and when/how you can trust yourself. We are all weak in one or more ways - and strong in one or more ways.

peterplanchet · #9 (**permalink**) 07-08-2007, 10:48 PM

Minion's advice is important. If you cut up (i.e. cancel) the credit cards, your credit rating will go down. Restoring your good credit should be your top priority (that way, you will have lower interest rates in the future).

You might try to put the credit cards in a bowl of water and put it in the freezer. That will prevent you from using them fromanything other than an emergency.

-- Peter Planchet

magic301 · #10 (**permalink**) 07-10-2007, 06:53 PM

pay off the credit cards, they cost you more than you can earn on the savings, also paying them off will improve your credit rating thus bringing your interest rates down again.

BillR · #11 (**permalink**) 07-11-2007, 04:35 PM

I just want to point out that I said "cut up the credit cards" for a reason

I don't think you should immediately cancel them.

ed woo · #12 (**permalink**) 07-14-2007, 06:45 AM

This is what i would do:-
1. pay off debts one clean sweep.
2. Keep the credit cards at home & don't take them out ever, when you are shopping (keep them for any emergencies)
3. Prepare a budget, keep to it. Spend less than you earn & slowly save some cash.
4. once you have a bit more, stasht the money, where you are easily get to it. An account further from your work place or home & without atm card or checking would be good.
5. Get into a habit of savings then investing.

katharina · #13 (**permalink**) 07-17-2007, 07:28 PM

Quote:

Originally Posted by peterplanchet

If you cut up (i.e. cancel) the credit cards, your credit rating will go down.

Can someone explain the reasoning behind this? I cancelled our cards and the credit rating was just fine when it was time for a dream home mortgage.

Quote:

You might try to put the credit cards in a bowl of water and put it in the freezer. That will prevent you from using them fromanything other than an emergency.
-- Peter Planchet

Can't say I've ever heard this one before. Mighty clever. It's not cold hard cash

but at least it's cold!

Mark A · #14 (**permalink**) 07-17-2007, 09:21 PM

1/3 (roughly) of your credit score is based on a debt to credit ratio. Another way to think of this is how much UNused credit do you have available?

Cutting up (instead of closing) credit cards means that on your credit report you still have that credit available. Even if you've made it unavailable to yourself, according to the report you can still access it.

parise · #15 (**permalink**) 07-18-2007, 02:35 PM

I would pay off the highest and put the rest in the bank. Don't use all the money to pay off everything. It makes no sense to.

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