How Do You Pay down Debt?

Updated on October 13, 2011
M.D. asks from Washington, DC
16 answers

My hubby and I have a decent amount of debt, unfortunately. We are getting a decent amount of money next week, and I'm wondering what the take is on how to pay it off. (I am a financial analyst by trade, and I know what my thoughts are, but I'm curious as to what other people think also.) We can 1.) pay off several accounts completely and put the $ we were putting on those towards the two that would remain open or 2.) pay a good chuck towards all of them to get the debt ratio down, but still have monthly payments on them all. What are your thoughts?

All of the cards we pay off are being CUT UP or put away in a sealed envelope in the gun case - where I know I won't go unless it's an emergency. Do you also suggest to only keep one card open? I worry that closing cards will hurt our credit score, but I don't want to keep them open and be tempted to use them. (Keeping in mind that right now we are back to not putting anything on our we use cash/check card only.)

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So What Happened?

Thanks ladies! There is definitely some good advice in here and I'll make use of all of it, play with all of the tools, and go from there!

@ Denise - I asked a question here because it is a mom board and because that's what the site is for. If you don't see a need in me asking a question, then I don't see the need for you to respond.

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answers from Washington DC on

I know you have a lot of responses but I've always felt better completely getting rid of one debt and being done with it so I vote for pay 3 off and work on the other 2.



answers from Kansas City on

I'm the oddball here! I know what Dave says and I know what Suze says and I hit somewhere in the middle. I pay off whatever is going to give me the most disposable income to play with.

For example, if I had one loan for 5 grand and two smaller ones totaling 4 grand, I would pay off the one that had the higher payment to get the most money back regardless of the smaller balance or highest interest rate. If paying off the two smaller ones would give me 200.00 but paying of the larger balance would give me 500.00, I pay off the one giving me five back. It's just a bigger chunk for the next snowball.

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answers from Pittsburgh on

I would pay off the highest interest cards first - in full. Then do exactly as you said. Whatever money you had been using to make the payments on those cards should be applied to the next highest interest card, to pay it off, while making the minimum payment(s) + interest on the lowest rate card(s). Keep doing that until they are all paid off. This is what I did when I had a couple cards with balances...

I've never been real clear on the whole 'keeping cards open with 0 balances vs. closing the accounts' thing... one sources says keep them open, and the next says close them... so I don't have any advice there. I have kept mine open, not out of a desire to keep them available for use, per se, but out of laziness in that I don't ever get around to calling the companies to close the accounts. I don't have the cards, so there is no temptation to use them, I just haven't closed the accounts.

I do keep one card active, that I use for gas only, and pay it off each month. I suppose it's also there for an emergency, but we also have a little emergency savings account that would go first... the card I use for gas accrues points that I cash in each Christmas for about $200 worth of gift cards that I use for Christmas shopping, and since I don't keep a balance on it, I don't pay any interest, so it's all good.

That's what I do.

3 moms found this helpful


answers from Pittsburgh on

Really, I don't see why a financial analyst would ask this question, but I'll tell you how we achieved NO DEBT.
Dave Ramsay's debt snowball. Payoff smallest debts first then add those payments to the next largest etc. until all debt is paid off.
But first you should have $1000 (min) in an emergency fund.
I'd cut up the cards if you're not going to use them. Why tempt fate.
You can't "close" the accounts til they're paid off anyway.
We are debt free including our home.

2 moms found this helpful


answers from Washington DC on

I would pay off as much as I could with the money I know I am receiving (highest interest rate and balance) and then use the money that I was using to pay those to pay off the remaining debt starting with the highest interest rate first.

I would not use credit cards. I do miss having them - but I don't miss the bill coming in the mail!!! If you aren't using them now this is a GREAT thing!!

If you are planning a big purchase - such as a car or a house - don't close them - but if you aren't using them, don't plan on moving, close them and take the ding on the credit report - it won't be much - not as much as they who want to scare you are saying...if you already have a mortgage - that's the biggest factor in your credit report - paying it on time, etc. since it will be the longest and highest item on your credit report - you will be fine.

We are a cash only family - no credit cards - all closed and our credit scores are a little above 700 maybe higher...since we don't worry about it, we don't check it monthly...

2 moms found this helpful


answers from Boston on

I agree with Christine. I use for personal finance and they have a pay down your debt goal that you can set up. You figure out how much you want to spend and it'll tally up your interest rates and figure out which to pay off first. If you're going to just make a lump sum payment you may not need this, but if you will have some balances left, then you can use this to plan future payments. Meaning...if you have been paying $500 per month over 5 cards but wipe out 3 of them, leaving you with just $200 in monthly payments, you can use mint to play with the other $300 and see how quickly you can wipe out the remaining debt by still putting that extra $300 (or a portion of it) towards the other cards. I know that the math isn't rocket science and that you can figure this out because you work in finance (as do I) but the way mint does it is so much prettier and more motivating than looking at an Excel spreadsheet LOL.

1 mom found this helpful


answers from Oklahoma City on

I had someone tell me once that they put their credit cards in a bowl of water then froze them. When they got the urge to shop by the time they got the ice chipped away and the cards free the urge had I imagine today with the magnetic strips and having to swipe them instead of using the machine that pressed them into carbon and such it would destroy the cards instead.

I think paying off what you can and then just paying higher payments on the others would be a good way to go. That way if you had an emergency you could "not" make the extra payment but still meet the minimum and use the extra payment money to take care of the emergency.

Good for you guys to pay off debt like this.

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answers from Boston on

I have a financial software that is a debt cancelling program. It's amazing. It's saved me over $10k in interest in just a year. However, it makes all the decisions. It tells me which debt to focus on. I say pay things off though. It focuses on one and gets rid of it then puts that money towards the next one. I will say the one it focused on was an overdraft account. I thought from there it would go to a personal loan we have for a quad but it actually started chunking down the mortgage next. :)



answers from Miami on


Well, I am a financial planner by trade so my thought process might be similiar as I'm sure we have a similiar education background.

Conventional wisdom says to pay the debts with the highest interest rate as much as you can - and fully if possible. I absolutely hate bill paying so if the interest rates were similiar then I would knockout some completely and reduce the number of bills I had to pay monthly.

My understanding is that closing credit lines will temporarily hurt your credit but unless you plan to finance a house or a car in the next 12 months you are better off closing the accounts than leaving them open with a zero balance. Also, remember that any account that is open could lead to fraudulant charges that you have to clean up. I believe in closing anything you have no plans to use.

I usually suggest having two credit cards. One that you use and pay monthly and one that is a "back up". Your back up might be a credit card in your husband's name. Do make sure you maintain a credit card in your own name.

Cheers, C.


answers from Norfolk on

Option 1 sounds good as far as it goes.
Can you consolidate the two remaining to 1 place (where ever the lowest interest rate is) where you will be dealing with 1 amount to pay?
The way to keep it shrinking is to not add to it (keep holiday shopping to a minimum - never go into debt for it) and pay more than the minimum when you get a chance.
Clean out some closets and the garage (and attic or basement) and have a yard sale.
Not only will you have space that's been de-cluttered but you'll have some extra cash to pay the debt down even further.
It's good you are cutting up excess cards and locking up the others.
You can keep a few open.
The funny thing about credit scores is too many open cards will also hurt you, so just keep 2 - 4 or more is just asking for trouble.
Using check cards is ok as long as usage fees are not eating you alive.



answers from Cincinnati on

I think your option 1 is the better choice. I would guess that closing the cards would not harm your score but I am not positive.



answers from Charlotte on



answers from Denver on

I would choose option 1 most definately. Get yourself out of the hole asap. I don't think closing a few accounts would hurt you too bad. Having good credit is paying off debt timely and efficently. Having serval lines of debt continuously can't be good. I think it might be a good decision seeing that having credit cards may be tempting you to over spend. Also, more importantly than closing accounts and paying some down, you need to evaluate your bad spending habits and change those...only then will things get better. You can still over spend using cash and the check card.

Credit cards can be good, if you pay off your bill completely every month, you can take advantage of the freebies - like 1-5% back on the money you do spend. If you are getting these percentages back but paying interest rates, your losing free money and the credit card company is winning, which is their goal of course! Once you pay off your debt you can start fresh and start making money while you spend :) But sometimes you have to be in debt for things you do keeping one or two cards I think is best and less tempting. Best of luck!



answers from Chicago on

We got money earlier this year. We made the mistake-if you can believe that-and paid off the higher interest cards that have been playing games with our balance and interest rates and then paid smaller ones plus made payments to the others we have. That was a mistake only because we tried to get a mortgage and we were told we had to wait a year or so to show that we would not be using the credit again. We did not close the accounts since that would have affected our score for percent of debt etc. If we had left balances on the cards we paid off and kept the funds we would have had a better chance. Plus I have a mortgage on a building we own and with the tighter guidelines, they don;t like to do that much anymore. But our scores did go up.



answers from Dallas on

We did the same thing as Jen B., we didn't know it was the Dave Ramsey approach. We did it because it seemed to make sense and because it was nice to have little accomplishments along the way as we payed the small debt off.

Good luck!


answers from Houston on

We closed all our cards and yes it does hurt your credit score, but being a homeowner helps and building up a cash pool where credit is not a big issue helps too. We paid off all our debt and cars in about 2 yrs. We did the Dave Ramsey approach. We saved $1000 for short term expenses, you may already have short term savings as you are financial analyst. So we started there. We made what he calls a debt snowball. We ordered our debts from smallest to greatest, not by interest rates etc. Like we had this silly $400 debt from a long time ago, well we blitzed it out. Then we took what we were paying like $100 per month and added it to the monthly payment for the next debt in the line up. We also figure out by doing a solid budget, what our 'float' was. We used that plus our growing snowball to pay off all our debt, like 40k in about two years and I was at home and having babies, and we had purchased a home :D So basically, you get your short term savings together fast. Then you figure out after your bills what you have left every month. You line up your debts smallest to greatest, pay the minimum on each debt, and use your float amount on the debt you are paying off, then you take the whole amount you were applying to the debt you paid off on the next debt and the snowball just gets bigger and bigger. Anyway, you can take a look at the book The Total Money Makeover. It's great and very practical. We are now working toward other financial goals like building a fully funded emergency fund (3-6 months pay) and paying off our house. It takes time and we aren't perfect but we are debt free and that helps a ton. Good luck!!

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