To make a very long story short being young and stupid I managed to get myself and the Mrs's into some serious credit card debit. About 2yrs ago we finally said "enough is enough" and changed our lifestyle.
We are just about caught up with the CC debit (should be CC debit free in ~2months). Once we get the CC debit paid off I'm trying to decide what to do with the "Extra" money that we will have. I have a few ideas in mind but would like some advise as to what to do to help regain some decent credit scores.
A) pay off the vehicle which is $12,300 @ 4.9%
B) pay off the student loan which is $5,100 @ 2.48%
My gut tells me to pay off the larger balance/higher interest rate however ive had more "dings" on the credit report from the student loans. So I thought that if i paid that off earlier it would somewhat help my credit score.
Any thoughts/input/advise

*sorry for the long post.

Sorry I'm no credit guru but how did you manage to get a student loan with such a low interest rate? Federal? I have a 10,000$ private loan and my interest rate is up near 12%

They are stafford loans. I use to have very good credit...back when I applied for those.

My advice, is to pay off your car loan. The sooner/faster you pay off your car loan, the less interest that will accrued.

With your student loan, you can write it off during tax season. But for a car loan, you can't.

Hope this helps, and your thought and direction is correct. Pay off the highest balance first with the highest interest rate. But if there is a catch (like tax benefits), then pay off the next highest interest rate.

Best thing to do, and probably the least expensive is this:

You have 12k balance?

Payments are probably in the 260-300 range

Pay 150-190 every 2 weeks. The balance MUST get readjusted every time you make a payment, so you're only giving your balance 15 days to accrue interest, rather than 30. So say you're 12k balance is accruing at 4.9 %, let's do the math.

so a 12,300 balance is accruing interest on that amount at about 1.65 a day give or take.

12,300 x 0.01342465753424% (4.9% / 365 days) every day comes to approx 1.65 per day.

Over an avg month of 30 days, you're going to accrue approx 49.50 on that months payment of interest.

You pay your normal monthly payment of $300, only 250 goes to principle.

Now let's look at this in a bi-weekly schedule.


Take your 300 payment, pay $150 every 2 weeks

1.65 x 15 days of accrued interest comes out to $24.75 in interest. You've made a payment of $150 so let's say for round numbers $125 goes to principle.

Take that $12,300 balance deduct the principle amount you've paid

new balance is $12,175

The new interest amount per day (per diem) on the new balance is 1.38 per day

new interest amount 20.70 for that 15 day cycle.

So for that 60 days you've paid about 5 bucks more to principle than interest.

It's not a whole lot, but effectively you're lowering your interest rate when you calculate how much you've paid over the same amount of time if you pay monthly rather than bi-weekly.

Some companies may gripe and encourage you to pay monthly as they make more interest on you, however you can politely tell them to fuck off.

This works good with anything that charges you interest. The most money is on a home loan. You take a 30 year mortgage, at $1000 a month, and pay bi-weekly, IIRC you'll pay off the house in 27 years rather than 30.


Oh and if you pay MORE per bi-weekly payents than add up to the min monthly, that much MORE goes to principle.

I know this works, I got fired from Morgan Stanley Dean Witters Discovercard branch for instructing clients to do this.

Best thing to do, and probably the least expensive is this:

You have 12k balance?

Payments are probably in the 260-300 range

Pay 150-190 every 2 weeks. The balance MUST get readjusted every time you make a payment, so you're only giving your balance 15 days to accrue interest, rather than 30. So say you're 12k balance is accruing at 4.9 %, let's do the math.

so a 12,300 balance is accruing interest on that amount at about 1.65 a day give or take.

12,300 x 0.01342465753424% (4.9% / 365 days) every day comes to approx 1.65 per day.

Over an avg month of 30 days, you're going to accrue approx 49.50 on that months payment of interest.

You pay your normal monthly payment of $300, only 250 goes to principle.

Now let's look at this in a bi-weekly schedule.


Take your 300 payment, pay $150 every 2 weeks

1.65 x 15 days of accrued interest comes out to $24.75 in interest. You've made a payment of $150 so let's say for round numbers $125 goes to principle.

Take that $12,300 balance deduct the principle amount you've paid

new balance is $12,175

The new interest amount per day (per diem) on the new balance is 1.38 per day

new interest amount 20.70 for that 15 day cycle.

So for that 60 days you've paid about 5 bucks more to principle than interest.

It's not a whole lot, but effectively you're lowering your interest rate when you calculate how much you've paid over the same amount of time if you pay monthly rather than bi-weekly.

Some companies may gripe and encourage you to pay monthly as they make more interest on you, however you can politely tell them to fuck off.

This works good with anything that charges you interest. The most money is on a home loan. You take a 30 year mortgage, at $1000 a month, and pay bi-weekly, IIRC you'll pay off the house in 27 years rather than 30.


Oh and if you pay MORE per bi-weekly payents than add up to the min monthly, that much MORE goes to principle.

I know this works, I got fired from Morgan Stanley Dean Witters Discovercard branch for instructing clients to do this.

Great solution... but the only thing with bi-weekly is when you have the funds. If funds are available, this is one of the best general method out there. Good post!

Most people get paid bi-weekly or twice a month. Makes sense to pay bills the same way.

My belief is to pay off the acount with the lowest balance first, get the small acounts out of the way. Then work on the large accounts when you have more disposible money

I disagree, sure paying off the smaller balances gets rid of em, but they're not costing you as much in interest. I think one should pay off the larger balances first because even if you have a large balance with a smaller rate the principle amount can, in some cases cost you more than the smaller balance. Not always, but what I'm getting at is when you're calculating which one to pay off first, see which balance is costing you more each day.

APR / 365 comes out to what the percentage of that balance per day

Balance x per diem rate

Pay off the per diem amount that's higher.


Balance

Vooduguru is mathematically correct.
LynnM is personal finance correct.

Successful personal finance is all about behavior. There is no power in understanding or knowledge. There is power in habits. Paying off a bunch of debts with smaller balances first does two things: it simplifies your life by getting a bunch of buzzing gnats away from your head so you can think; and it gives you an instantaneous feeling of accomplishment - a sense that the new direction you've set out on will change your life. If you attack a large balance first because it has the highest interest rate, it will be a very long time before you experience any tangible results. Mathematically, you will save a few dollars in interest - if you stick with it. But you are much more likely to stick with it if you've already seen a bunch of progress in the form of debts paid off and you're writing big honkin' checks against it.

Vooduguru is mathematically correct.
LynnM is personal finance correct.

Successful personal finance is all about behavior. There is no power in understanding or knowledge. There is power in habits. Paying off a bunch of debts with smaller balances first does two things: it simplifies your life by getting a bunch of buzzing gnats away from your head so you can think; and it gives you an instantaneous feeling of accomplishment - a sense that the new direction you've set out on will change your life. If you attack a large balance first because it has the highest interest rate, it will be a very long time before you experience any tangible results. Mathematically, you will save a few dollars in interest - if you stick with it. But you are much more likely to stick with it if you've already seen a bunch of progress in the form of debts paid off and you're writing big honkin' checks against it.

This is so true.

Vooduguru is mathematically correct.
LynnM is personal finance correct.

Successful personal finance is all about behavior. There is no power in understanding or knowledge. There is power in habits. Paying off a bunch of debts with smaller balances first does two things: it simplifies your life by getting a bunch of buzzing gnats away from your head so you can think; and it gives you an instantaneous feeling of accomplishment - a sense that the new direction you've set out on will change your life. If you attack a large balance first because it has the highest interest rate, it will be a very long time before you experience any tangible results. Mathematically, you will save a few dollars in interest - if you stick with it. But you are much more likely to stick with it if you've already seen a bunch of progress in the form of debts paid off and you're writing big honkin' checks against it.

I agree with this. I had a bunch of little debts and 2 big ones. Conventional wisdom says pay the high interest rates first but I paid all the little ones first.

This did two things. 1. it got rid of a bunch of mail which was psychologically liberating. 2. Freed up a lot of money to put towards the big debts. Now I don't know the dollar and cents but I can tell you that the small debts were paid off quickly and it feels nice putting all of those other payments towards the bigger payments. It may not be faster, but it certainly feels like it is because the small balances were paid off quickly and we are throwing tons of money at our big debt now which appears to be getting paid off fast. By getting rid of all of the smaller minimum payments it allowed us to aggregate to minimum payments and pay off the larger debt without feeling it.

Listen do Dave Ramsey. Helped my finances.

The sub-title of the article linked above is "Improving Your Credit Score Can Save You Money". No, it can't. Getting a slightly better interest rate due to a better credit score and saying that "saved you money" is a bit like crashing and sliding through the grass instead of sliding across the asphalt. One is less painful than the other, but they both suck compared to not crashing. Dolts like the guy who wrote this article never consider that there's a third option that REALLY "saves you money", and that's NOT CRASHING AT ALL. In this case, not crashing at all equals - DON'T BORROW MONEY TO BUY CRAP IN THE FIRST PLACE. Then you can let all your pin-headed friends babble excitedly about how much money they're saving with their outstanding credit scores while you actually go about the business of building real wealth. That's right: becoming rich. You. Just by not doing the stupid stuff broke people (and your friends are broke) are doing.

And by not listening to the marketing message of the debt industry.

The sub-title of the article linked above is "Improving Your Credit Score Can Save You Money". No, it can't. Getting a slightly better interest rate due to a better credit score and saying that "saved you money" is a bit like crashing and sliding through the grass instead of sliding across the asphalt. One is less painful than the other, but they both suck compared to not crashing. Dolts like the guy who wrote this article never consider that there's a third option that REALLY "saves you money", and that's NOT CRASHING AT ALL. In this case, not crashing at all equals - DON'T BORROW MONEY TO BUY CRAP IN THE FIRST PLACE. Then you can let all your pin-headed friends babble excitedly about how much money they're saving with their outstanding credit scores while you actually go about the business of building real wealth. That's right: becoming rich. You. Just by not doing the stupid stuff broke people (and your friends are broke) are doing.

And by not listening to the marketing message of the debt industry.

We have a winnah!!!:cheers

The sub-title of the article linked above is "Improving Your Credit Score Can Save You Money". No, it can't. Getting a slightly better interest rate due to a better credit score and saying that "saved you money" is a bit like crashing and sliding through the grass instead of sliding across the asphalt. One is less painful than the other, but they both suck compared to not crashing. Dolts like the guy who wrote this article never consider that there's a third option that REALLY "saves you money", and that's NOT CRASHING AT ALL. In this case, not crashing at all equals - DON'T BORROW MONEY TO BUY CRAP IN THE FIRST PLACE. Then you can let all your pin-headed friends babble excitedly about how much money they're saving with their outstanding credit scores while you actually go about the business of building real wealth. That's right: becoming rich. You. Just by not doing the stupid stuff broke people (and your friends are broke) are doing.

And by not listening to the marketing message of the debt industry.

Aaaaaaand, as usual, you are right.

Buck the tide. Don't do the stupid shit your friends do.

--Wag--