I have a $25K loan, $4500 credit card, $1500 credit card. They are all in collections, what should I pay off first?

I have a $25K loan, $4500 credit card, $1500 credit card. They are all in collections, what should I pay off first? I also have some smaller credit cards and I have charge offs on these.

I am just trying to start getting my life back on track. I have $7,000 in the bank and I make $4,000 a month after taxes. Speed is what I want but want to do it the right way and the smart way.

Asked by msims 9 months ago Similar questions: $25K loan $4500 credit card $1500 collections pay Business > Financial Planning.

Similar questions: $25K loan $4500 credit card $1500 collections pay.

You need to pay off the account with the highest interest rate first. But, it also depends on how much you money you have available each month to put towards the debt. You should take that monthly amount and pay on all three.

Since you have one large debt, and two smaller debts, you should put a larger amount on the $25,000, or it will take forever to pay it down. If this large loan is with a bank, if you have not done so already, go in and talk to the bank branch manager and see if you can work out some kind of payment arrangement. If not, go to a web site that has a loan payoff calculator.

This allows you to put in the amount owed, interest rate, and money available to pay off the debt. It will tell you how much to pay on each loan and how long it will take to pay it off. bankrate.com/calculators/credit-cards/ba... should also talk with an organization like Consumer Credit Counseling Service.

They are a non profit organization that can give you advice about your debt. The one thing they will tell you is you should have called them before the debt went to collection. cccsstl.org/enroll/enroll_feedback_1.asp aspx.

Well, I am trying to figure out Ancient_Hacker's math, I can't get the same answer he does. So he needs to show me the math. If you pay off the $25,000 loan at 5% at $3,000 a month and the $4,500 at 9% at $500 a month (his example) you have a combined loan interest of 5.61% with a payment of $3,500 a month.

If this is the case, both balances will be paid off in 10 months with an interest cost of $675.81. So I don't know where he came up with $13,248. There is no way there can be that much interest on a 5.61% interest average on a loan that is paid off in 10 months.

I have also tried to google the term interest cost and interest rate. I find the two terms interchangeable. So while he is in the process of trying to explain the $13,248 of interest, he can also give me a good example of interest cost vs. interest rate.

If he is talking about additional internal cost of one card compared to another, then yes, one card could have higher fees and costs than another. Here is a link to how to pay off a debts. Gher interest rate first.

credit.about.com/od/reducingdebt/qt/payc... htm.

In his second example, he is paying $2,000/month on the 5% loan and $1,500 on the 9% loan. The loan average rate is still 5.61%. It now takes one year and one month to pay off the debt, and the interest cost is $797.20.

, not $16,202.

Thanks for providing the figures. I am glad you are not my financial advisor. You have made a major math error.

I am surprised you did not catch the mistake. You said pay $3,000/month and $500/month. Now here is the mistake.

This is a monthly calculation, not an annual calculation. $25,000 at 5% per year is $1,250. This is per year not per month.

The interest rate per month is .0042%. So in the first month the interest is $105. On the $4500, the annual rate at 9% is $405.

The monthly interest rate is .0075. The first month interest on the $4,500 is $33.75. Now since the balance is dropping rapidly, we can pay the balance off in 10 months with a total interest charge of $675.81.

If you think about it, you will see that paying $3,500 a month on the two loans would mean there is no way the balance would last longer than a year. $3,500 X 10 = $35,000. We only need to pay off $29,500.

You made the same mistake in the second example.

It does matter one whit. It is a difference between paying 5% interest a year an 60% interest per year The person asked a question and your math provided an incorrect answer. I agree with TLW.

You have not proven your argument. $13,248 of interest. Glad you are not my advisor.

A_H, you are not all wet. You made an honest attempt to answer a question. It is easy to make that calculation mistake.

I, most of the time, don't use a spreadsheet, but my HP10BII. It is very easy to forget to set the number of payments to 12/year instead of 1/year or payments at the beginning of the year instead of the end of the year. But, I have been doing financial planning and advising since 1981.So when I get an answer, I can most of the time recognize the number is too large or too small.

Thats why when you gave the example as payments per month instead of years, I knew the interest amount was too large. Part of answering the questions here is the interaction between others who are also trying to help.It is just, as you have mentioned many times in the forum, it is very difficult to get a discussion going in this format because the comments don't connect with each other. That is what I like about this site.

When you gave your first answer, I was curious as to perhaps another way to come up with an URL3 made me think, and I like that. You would be amazed at the calculations new clients come up with in trying to prove a point or position. It is a challenge to allow them to discover for themselves the error in their argument.

The greatest part of my job is hearing my client say, "you really opened my eyes. " I never realized I was doing the correct math the wrong way. I do wish they would come up with a way to paste spreadsheet numbers into the answer areas.

Formatting is always lost when you make the paste.

Pay off the debt with the highest interest rate, first. It seems counterintuitive, but a small loan that charges higher interest costs you more per dollar of debt than a large loan at a lower rate: I.E. If you have a $2000 loan at 10% interest, and a $1000 loan at 20% interest, paying $500 on your $1000 loan will reduce your interest by $100 per year, while paying the $500 on the $2000 loan will reduce your interest by only $50 per year.

Sorry, I'm not buying the math either. Say you can pay $100 a month. Imagine you have 25 loans of $100, at 20% interest, and 100 loans at 10% interest.

The 20% loans cost $20 per year, or 1.67 a month to maintain. The 10% loans cost $10 per year, or .83 a month to maintain.(there are some rounding issues, but you get the idea)now, the 25 loans cost you a total of $41.75 a month in interest. The 100 loans cost you a total of $83 a month, for a total of $124.75 a month interest.

Now, say you wipe out a 10% loan: your monthly interest drops to $123.92. But say you wipe out a 20% loan, your monthly interest drops to $123.08. That's 84 cents in your pocket - almost enough to buy a hot apple pie at McDonalds.

I have also tried to google the term interest cost and interest rate. I find the two terms interchangeable. So while he is in the process of trying to explain the $13,248 of interest, he can also give me a good example of interest cost vs. interest rate.

I believe interest cost is the dollar amount of the monthly interest.

To clarify: you should be making at least minimum payments on everything, but you want to pay off the highest interest rate debt first, because the higher the interest rate, the more rent you are paying on each dollar you owe. Here is an example: I have a credit card and a loan:The card has a balance of: 5489.72, and cost 106.15 in interestthe loan has a balance of 30452.61, and cost 107.87 in interest. If I pay 5489.72 on the card, the interest will be reduced by 106.15.

If I pay the same amount on the loan, the interest will be reduced by about $25. How is reducing my interest by $25 a month for four months better than reducing my interest by $100 the first month, and $25 a month for the next three months? .

Lotsa poor answers you've collected here. The right answer is: pay off the account with the highest interest cost per month, NOT THE ONE WITH THE HIGHEST INTEREST RATE. For instance, if you owe 25,000 at 5%, and $4,500 at 9%, and can afford to pay a total of $3,500 :if you pay down the 5% loan at $3000 a month and the 9% loan at $500 a month, you end up paying $13,248 in interest.

If you pay down the 5% loan at $2000 a month and the 9% loan at $1500 a month, you end up paying $16,202 interest. So you see you DON'T WANT TO PAY DOWN THE LOAN WITH THE HIGHEST INTEREST RATE. You want to pay down fastest the loan with the highest interest cost per month.

Of course, you also want to pay more than the minimum payment, and definitely more than the interest cost, so that you're makinfg headway. So start off by allocating enough to pay off each loan's interest cost, plus say 10%, then whatever is left over, use that as extra to pay off the loan with the highest interest cost.

You can't "average" interest rates that way. Just do the math, paying down each loan and adding up the total interest. Here's the results for paying much more on the 5% loan: Loan rate Payment Int paid Loan rate Payment Int paid 5.00% $3,000.00 $8,145.03 9.00% 500 $5,139.79 Balance Interest balance Interest $25,000.00 $1,250.00 $4,500.00 $405.00 $23,250.00 $1,162.50 $4,405.00 $396.45 $21,412.50 $1,070.63 $4,301.45 $387.13 $19,483.13 $974.16 $4,188.58 $376.97 $17,457.28 $872.86 $4,065.55 $365.90 $15,330.15 $766.51 $3,931.45 $353.83 $13,096.65 $654.83 $3,785.28 $340.68 $10,751.49 $537.57 $3,625.96 $326.34 $8,289.06 $414.45 $3,452.29 $310.71 $5,703.51 $285.18 $3,263.00 $293.67 $2,988.69 $149.43 $3,056.67 $275.10 $138.12 $6.91 $2,831.77 $254.86 $- $- $2,586.63 $232.80 $- $- $2,319.43 $208.75 $- $- $2,028.18 $182.54 $- $- $1,710.71 $153.96 $- $- $1,364.68 $122.82 $- $- $987.50 $88.87 $- $- $576.37 $51.87 $- $- $128.25 $11.54 $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- Tot Int.

Paid: $- $- $- $- $13,284.82 -------------------------Now here's the result of paying more on the 9% loan: Loan rate Payment Int paid Loan rate Payment Int paid 5.00% $2,000.00 $15,210.56 9.00% 1500 $9911.54 Balance Interest balance Interest $25,000.00 $1,250.00 $4,500.00 $405.00 $24,250.00 $1,212.50 $3,405.00 $306.45 $23,462.50 $1,173.13 $2,211.45 $199.03 $22,635.63 $1,131.78 $910.48 $81.94 $21,767.41 $1,088.37 $- $- $20,855.78 $1,042.79 $- $- $19,898.57 $994.93 $- $- $18,893.49 $944.67 $- $- $17,838.17 $891.91 $- $- $16,730.08 $836.50 $- $- $15,566.58 $778.33 $- $- $14,344.91 $717.25 $- $- $13,062.16 $653.11 $- $- $11,715.26 $585.76 $- $- $10,301.03 $515.05 $- $- $8,816.08 $440.80 $- $- $7,256.88 $362.84 $- $- $5,619.73 $280.99 $- $- $3,900.71 $195.04 $- $- $2,095.75 $104.79 $- $- $200.53 $10.03 $- $- $- $- $- $- $- $- $- $- $- $- $- $- Tot Int. Paid: $- $- $- $- $16,202.98 $- $- $- $- -------------------------------------------------Or you can just do a thought experiment with the numbers extrapolated out to ridiculous values:If you had a loan at 1%, balance 1 trillion dollars, and a loan at 50% interest, $100 dollars.... which loan should you pay off first? .

$3,500 X 10 = $35,000. We only need to pay off $29,500. >You made the same mistake in the second example.Sigh.It does not matter one whit whether it's 5% a month or 5% a year.

The exact % interest is not important-- it's the relative amounts of interest times principal, which cannot change their relative sizes as the interest rate changes.

Oops, think Im all wet. If you look at it another way, you want to pay on the high interest loan first, no matter what the balances! Look at it this way: if you apply $100 to a 10% loan, next time, there will be $100 less principal, so you'll pay $10 less interest.

Apply $100 to a 1% loan, next time there will be $100 less there and you'll pay $1 less interest. So looked at this way, you're $9 ahead by paying off the high interest loan first. Sorry for all the shouting.

Dunno where I went wrong with my original argument and spreadsheet.

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Will the federal credit union will get back" "WE GAVE GOOD CREDIT, NEVER LATE, BUT HIGH CREDIT CARD DEBT WITH THIS STOP OUR FHA LOAN" "Where Can I get a loan for 30k with bad credit that I can pay back 4/20/09? " "How can I get a loan to pay off student loans and credit card debt?

I need a loan to pay off my credit cards and loans. I don't have that great of a credit score. What are my options?

Got the car loan from federal credit union and since I am planning to move. Will the federal credit union will get back.

We gave good credit, never late, but high credit card debt with this stop our fha loan.

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