Need input - which debt is a higher priority?

RockABye · July 2014

I need some input here. Due to a recent medical deal with DH, we accumulated some medical and CC debt. We were too focused on paying medical bills and had to use the CC for groceries/gas, plus we had a little on there from a past (failed) infertility treatment. I've always been very anal about my money and have managed to avoid debt like the plague until recently, so having this debt is stressing me out like crazy. I'm not sure what to tackle first after we pay off the medical debt, which will be in another month.

Medical - approx. $1k. Will be gone within a month. No loans here, just flat out bills ( 2 at approx. $425, then a few little ones. There is potential for another $450 one to come through, but we're not sure if it will as the lab is supposed to eat those costs since ins denied yet they did the test anyway and that is per our doc who verified before tests were performed)

Credit Card - approx. $5k at 9.9%

Credit union loan - Approx $4K at 10.11%.

Would it be better to tackle the CC or the loan first? the interest is very close so I'm not sure.. We'd also toyed with the idea of doing a balance transfer with 0% to another CC to pay off the $5k cc debt. This would mean opening a new CC though, which would NOT ever be used, other than the balance transfer, and would be closed upon final payment. That would just free us up a little bit and take some pressure off because we wouldn't be worried about interest. Of course I'd have to check the balance transfer fees and make sure it wasn't more than the interest would be. I'm not sure if that is a bad idea though. I don't know if opening up another CC is the best idea.

Any input?

Thanks y'all!

hoffse · July 2014

They're close enough that it doesn't make a huge difference mathematically. I would probably do the higher interest one first because that's just me, but the DR followers will tell you to do the lowest balance first to stay motivated (doesn't sound like you have a problem with that though). Pick whichever one makes you feel better. If this debt is really stressing you out, then maybe go with lowest balance because you might pay it off a month earlier.

formerlyGDaisy09 · July 2014

Seems like you're on top of it. If you have a plan you know you can follow to pay-off a 0% interest card before the promotional period expires, H and I have had success playing that game (we avoided paying interest on $24K of CC debt) there will be a small one time fee (3-4%) to transfer the balance, where H had 19-24% on that $24K this was a much bigger win for us, but it might save you a few hundred dollars.

I usually go for the higher interest debt first, so that's what I'd do. but they're pretty close.

brij2006 · July 2014

Hi RAB, I'm a regular over here too.

I would sit down and put together a very strict written budget to get rid of these as soon as possible. Budget every expense, and make cuts in different areas so you can plug away at these. I would start with the medical debt first, then snowball that payment to the credit union loan. Once that one is paid off, then snowball both of those payments toward the credit card.

You could also call the credit card company and try to negotiate the interest rate. Let them know that you're doing the debt snowball and want to get their debts taken care of, and would like to get the rate lowered. Your rate is decently low for a credit card as it is, but it's worth a shot. Also, cut up the card so you aren't tempted to fall back on it.

You know that I'm a Dave Ramsey follower, but it's definitely worth picking up his Total Money Makeover book and reading it with your H. It can help to give you a "plan" on what to do with your money and how to take the steps needed to feel more comfortable with what you're doing with your money. Getting on a strict budget can also free up a lot more money than you every thought possible.

RockABye · July 2014

@AprilH81 - no it's not. We had thought about paying equally so we may revisit that again!

hi @brij2006! We already have a very strict written budget and are doing the snowball. I've read TMM too Just trying to figure out which debt to snowball first Thankfully, we haven't used the cc any more and have no intention of doing so. Now we're just in "pay it all back" mode!

brij2006 · July 2014

@rockabye That's awesome! You guys are definitely on the right track with this, and you will get rid of it sooner than you think. Just keep plugging away.

vlagrl29 · July 2014

medical loans are usually 0-1% interest, so I would focus on the loan with the highest interest rate first.

MommyLiberty5013 · July 2014

If you save money, even with paying fees for a balance transfer, then mathematically it makes sense to go that route to a 0% CC offer for as long as you can get it. 12 months? 18 months?

While it would require you to open an additional CC, it might give you more peace of mind knowing you aren't dumping money down the drain on those kinda high interest rates.

If you cut up the card once it arrives in the mail, and just use the account to pay off the debt, and you do the math and the math says you will save money, then why not do it?

If this does work out, than still make monthly payments to the 0% CC so by the time the promo offer time period is up, the balance is paid off. And, watch this promo period ending very carefully. Whenever DH and I do 0% offers on things, we actually pay them off 1-2 months early just to be sure we don't get messed up.

RockABye · July 2014

Thanks! We ended up finding a great deal with another CC (0% for 18 months, plus 0% transfer fee if done within 60 days). The transfer amount will take up about 2/3 of the available balance, but we have absolutely no intention of using it OR the existing card, so we should be good! We also have no large expenses coming up that would require anything with our credit, so even if it takes a small hit for having a high balance, I think by saving the money and paying it off, it'll rebound before it "matters" I guess. Our ratings are already excellent, so we're not concerned with that anyway. Now we can hit the 10.1% loan aggressively first!

@MommyLiberty5013 - we do the same thing! I've already done an average payment over the 18 months so I know what unofficial minimum we need to pay. We've taken advantage of several 0% financing over the years and, like you, have ALWAYS paid it off way ahead of time.

Thanks for the input, ya'll

Need input - which debt is a higher priority?

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