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[Poll]
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Pay Highest Interest or Lowest Balance?
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| Pay highest interest first |
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| Pay lowest balance first |
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Total Votes : 26
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(last vote on : 4/27/2008 5:47:49 PM)
(Poll will run till: -- )
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Pay Highest Interest or Lowest Balance? - 4/15/2008 7:50:49 PM
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DeltaPine
Posts: 10
Joined: 8/18/2005
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Much has been said about whether a person should pay off first the loans with the highest interest or lowest balance. This post is not here to discuss the merits of either.
WITHOUT DISCUSSION OR COMMENT VOTE YOUR PREFERENCE.
(Sorry if I had to shout to get the point across)
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RE: Pay Highest Interest or Lowest Balance? - 4/15/2008 8:09:48 PM
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Random
Posts: 1157
Joined: 4/18/2005
From: Zipperhead
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Is your question "Which would you pay off first?"
or
"Which should the average person pay off first?"
The answer might be different.
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RE: Pay Highest Interest or Lowest Balance? - 4/15/2008 8:11:35 PM
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karlie
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Attention Moderator's Note:
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RE: Pay Highest Interest or Lowest Balance? - 4/15/2008 9:06:51 PM
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DeltaPine
Posts: 10
Joined: 8/18/2005
Status: offline
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"Vote your preference" = "Which would you pay off first?"
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RE: Pay Highest Interest or Lowest Balance? - 4/17/2008 9:40:34 PM
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creationtalk
Posts: 583
Joined: 6/9/2005
Status: offline
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I voted "pay off highest interest first" but it really depends on what type of loan/debt we are talking about, how long a term, and many other factors (including which creditor called me for the 1000th time wanting to sell me something and I'm sick of it). I generally apply extra payments to consumer debt before mortgage debt, even though right now the mortgage has the highest interest rate (all rates are less than 6%). It also has a bit to do with "milestones." Sometimes when I have extra money to apply to debt and applying it to a certain debt will make that debt reach a "milestone" I will put it there...I paid an extra $100 recently to my lowest interest debt simply because it would put it at a "round" figure ($X000). It was a purely psychological thing.
I tend to play with numbers a lot...in my case, how I pay off my debt, presuming that as one debt is paid the $$ applied to it is transferred to other debt, it makes very little difference in the end how the payments were applied to debt. However, as specified above, interest rates on all debt are fairly low and fairly close together. If my rates had a greater spread and some were much higher, then it would make a much bigger difference how the debt is paid.
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RE: Pay Highest Interest or Lowest Balance? - 4/17/2008 9:56:20 PM
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Miss Giggles
Posts: 3636
Joined: 4/18/2005
From: MI
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There are credit card payoff calculators at bankrate.com and dinkytown.net so you can see which method will work best.
it depends on the balances and the interest rate
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RE: Pay Highest Interest or Lowest Balance? - 4/18/2008 1:07:20 PM
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APZR
Posts: 657
Joined: 4/18/2005
From: GA
Status: offline
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The advise I gave our neighbor, who is in deep trouble and are just trying to save their house, was in this order:
First... any secured debt (house & auto) with the highest rate.
Second... any secured debt with the second highest rate.
Third... any unsecured debt (credit cards) starting with the highest rate.
And what ever you do... do NOT turn unsecured debt into secured debt by refinancing your house to pay off the unsecured debt. The credit card companies scream and holler, because that's all they can do! They don't have any collateral, so they will try the hardest to get paid first. But do not fall for it, pay for your house and auto first!!!
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Ya can't keep trouble from visitin, but you don't have to offer it a chair.
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RE: Pay Highest Interest or Lowest Balance? - 4/19/2008 1:25:36 PM
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peace77
Posts: 1177
Joined: 4/18/2005
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If you have the funds to pay all the bills, pay at least the minimum on all bills.
If you don't have enough funds to pay the all the bills, you can reduce (or skip) the amount paid on medical bills. You can usually pay less than the full amount on a utility bill. While you will have to pay a late charge, it will be minimal. Call your creditor to be sure it's ok before paying less than you agreed.
For credit card bills, (if you can) it's best to always round up the amount that you pay to the nearest dollar. That is, instead of sending the credit card company $18.23, round it up and send in $19.00. Or, even better, send in $20.00. (Regardless of the interest rate).
Also, don't wait until just before the due date to pay the credit card bills (or any account that determines interest by the average daily balance). Paying the bill as soon as you can reduces the average daily balance and therefore also reduces your next interest charge. You can even pay weekly or biweekly when you receive your paycheck.
Pay bills online. Pay paying bills online the funds arrive at the credit card company faster -- another way to reduce the average daily balance. You also receive confirmation that the funds have been received/will be received. The credit card company cannot use the excuse that your funds did not arrive in the mail or that they did not arrive on time.
Paying online also saves money by not having to use a stamp. On May 12th, the cost of a stamp will increase to 42 cents. Paying just one monthly bill online instead of by mail will save $5.04 per year.
If you have additional funds, Pay the highest interest rate debt first.
There are exceptions that apply in certain situations:
1. If funds are tight (there is not always enough to pay all the bills) AND there is a bill that could be paid off in 6 months or less. Pay off this small bill so that there is one less payment to make.
2. If one of the bills is a credit card at 0% that will be coming off 0% in 3 months or less. Pay extra on this account before you pay additional on a low interest debt such as a home or student loan. (This is especially true if you do not have the discipline to leave your additional funds in an interest bearing account until just before the 0% runs out.)
Peace,
Anne
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RE: Pay Highest Interest or Lowest Balance? - 4/21/2008 11:58:23 AM
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Galilee
Posts: 163
Joined: 4/22/2005
Status: offline
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I voted lowest balance first, but I would say it depends.
If I can pay one entire one off, then it's gone.
If the balances are pretty close together, then the higher interest one gets the money.
For instance, we have one investor who has been getting $435 a month for the last 22 months from my bakery. Well, at the end of this month, if I can pay him 2 payments, he's done. And $435 a month is a lot of money. He is only 4% interest, but I want that money back in the budget.
I have another debt that is 22% and is about $2,000. I could knock that one down and pay the investor next month, but, for now, anyway, the less payments I have to make every month the better. And the $2,000 will be the next one I work on knocking out, anyway.
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The Son of God became the Son of Man so that the sons of man might become the sons of God. -- Terry Fullam.
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RE: Pay Highest Interest or Lowest Balance? - 4/25/2008 9:39:40 AM
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redeemedsaint
Posts: 542
Joined: 12/5/2005
Status: offline
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I would pay the lowest balance first, then work your way up the ladder. At least, that is what some of the financial analysts say.
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Get off the track cause the freight train is coming - Coach Bobby Lee Duke from Facing the Giants
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