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I am new to the forum and would appreciate some good advice. Have listened to Dave Ramsey often. We have used the enveopes for budgeting for years. Have the following debt:
Mortgage @ 5.789%
Credit Card 0% (this will be my question) $8,000 balance
Car loan @ 5.25% $4900 balance
Daughter's school loan @4% $1700 balance.
The question: The traditional "snow ball" would have us pay off the school and car loans first, however, the credit card at 0% will soon be converted to a 18% rate. We have the money to pay off the card. Should we pay that off before it goes to 18%, and then pay off the school and car loans after? The interest amount for both the school and car loans are very low at this point.
I think the snowball thing is really supposed to apply if you don't have the money to pay off the higher interest debt. I don't know a ton about his ideas, but from what I understand his thought is you need to achieve tangible progress (i.e. paying off something) in order to maintain your momentum to keep saving/getting out of debt. So if you don't have enough money to pay off a larger higher interest debt, his thought is you should pay off a smaller one first so you have that sense of progress. But since you said you've got the money to pay off the higher interest rate credit card I don't think it would benefit you in any way to hold on to a large debt at 18% while paying off smaller ones at lower interest rates. You can pay off the credit card and get your "momentum" that way, while also being left with less debt at lower interest rates. Seems like a no-brainer to me!
I would definitely pay off the card first, that would eliminate a hefty payment each month. Next I would pay off the school loan. After that you will have more to apply to the car loan.
18% is outrageous! I would pay that off if it were me.
I think the answer would be simple if you just said you had $8000 at 18%. Yes, you are correct to pay that off now. If it was at 0% for a year the answer would be different. Good luck! Sounds like you are on the right track.
Really the question should be, why do you owe so much on a card?
paying it off will not do you any good if you will just end up having to rack it back up again.
Were you using it for large purchases like furniture, appliance ect? Or more consumable items like clothes vacations and eating out? Some people pay med bills with a credit card.
I guess what I am saying is, it should be a priority to fix whatever the situation is that caused you to end up owing so much on it. Otherwise you are likely to do it again.
