Which is less bad / pay off first, credit card debt or a personal loan

[jcblitz]

I was having a debate with a friend and neither of us are financial people, so the question to any of you is, which is worse, credit card debt or a personal loan and which do you pay off first/sooner/more aggressively? Here are some facts and goals.

Single male, renting apartment, car payment, minimum student loans, credit rating around 700, full time job, has about $1500 after minimum bills each month.
$10,000 credit card debt @ 10.99%
$10,000 personal loan @ 8.99% to be paid back on a 5 year schedule starting today.

He has $8,000 cash in hand. Which do you pay off (or how much to each) and why. Strippers and motorcycles are not options. The "goal" is to look more favorable to creditors in a year to buy a house, while lowering overall debt. My argument is to pay off all the credit card ASAP and pay the loan on a 2 1/2 year schedule. His argument is to pay off the personal loan ASAP, transfer all the credit card to a low APR credit card and pay it off monthly (he wouldn't commit to a monthly figure though)

Any thoughts, and if so, what are the reasons behind them. FYI, this person is a mutual friend we both went to college with that finally is getting his shit together after being the joke of our circle. I think he's lying about the 700 credit score, mines not that much higher, but whatever.

[Cakes206]

Always get rid of the highest interest rate debt first. Have him start reading books from either Dave Ramsey or Suzie Orman. Dave Ramsey's story is pretty cool actually, his credit score is actually 0 but yet hes a millionaire.

[SilverDragon]

I always lean towards getting rid of the variable rates first like credit cards. I'm in close to the same situation except I don't have 8K!

One thing creditors look for is debt/income ratios and how many different credit cards or loans you're paying. getting rid of either one would be good. In this case, since the credit cards have a higher APR, I'd get rid of them first.

A personal loan looks better on one's record than a credit card debt. You don't get any money back from your credit cards, however a personal loan could be for education or some type of investment, or credit repair.

[Cakes206]

Originally Posted by SilverDragon

however a personal loan could be for education

Fun fact: Claiming bankruptcy doesn't cover school loans, still responsible to pay that back.

Sorry for goin OT.

[RCM78]

Attack the higher interest rate first. Allocate as much money per month toward that debt until it's paid off then move to the debt with the next highest interest rate.

Of course you'll have to make minimum payments on all your debt's along the way.

Dont try to chip away at several debts at the same time. Work on them one at a time.

[jcblitz]

Well the question is really the type of debt, "revolving door" vs a loan.

Lets assume both APR's are the same. Giving them different rates here confused the actual question, sorry.

[Ant]

Originally Posted by jcblitz

Well the question is really the type of debt, "revolving door" vs a loan.

Lets assume both APR's are the same. Giving them different rates here confused the actual question, sorry.

That depends on what his income is and how disciplined he is. The revolving credit will have a lower monthly payment in case he gets in trouble. The loan won't.

[jcblitz]

Originally Posted by Ant

That depends on what his income is and how disciplined he is. The revolving credit will have a lower monthly payment in case he gets in trouble. The loan won't.

It's not about the payment. It's about how the type of debt is reflected on your credit. I think paying off the credit card is better because you have less of that revolving door effect if your card is paid off of and gone, and the loan is already preset on a payment schedule so that doesn't fluctuate, giving greater stability.

While his philosophy is debt is debt, so basically just add up the total sum and whatever you cannot pay off yet, get the best APR you can. Since you can move credit card debt easier than a loan, do that.

Anyone have any data to confirm either of those? I read http://www.mortgage101.com/Articles/...=1320&p=mtg101 and it pretty much backs my theory (assuming $1 of credit card debt is viewed as more risky than $1 of personal loan credit).

...thinking about this while I'm typing, there is point where the two philosophies intersect and the benefits wash out, it's all about scope. If anyone knows any good debt calculators, point me in the direction. I bet I could draw up a graph for him. I think the biggest factor on the graph would be time, that would determine the slope. Interest rate calculations blow and I hate them, probably why I failed calculus....twice.

[Ant]

Originally Posted by jcblitz

It's not about the payment. It's about how the type of debt is reflected on your credit. I think paying off the credit card is better because you have less of that revolving door effect if your card is paid off of and gone, and the loan is already preset on a payment schedule so that doesn't fluctuate, giving greater stability.

While his philosophy is debt is debt, so basically just add up the total sum and whatever you cannot pay off yet, get the best APR you can. Since you can move credit card debt easier than a loan, do that.

Anyone have any data to confirm either of those? I read http://www.mortgage101.com/Articles/...=1320&p=mtg101 and it pretty much backs my theory (assuming $1 of credit card debt is viewed as more risky than $1 of personal loan credit).

...thinking about this while I'm typing, there is point where the two philosophies intersect and the benefits wash out, it's all about scope. If anyone knows any good debt calculators, point me in the direction. I bet I could draw up a graph for him. I think the biggest factor on the graph would be time, that would determine the slope. Interest rate calculations blow and I hate them, probably why I failed calculus....twice.

Ok, then pay off the revolving credit. That is usually seperated from fixed loans. Fixed loans generally = better to credit bureau's and lenders.

If he's trying to get the lowest interest rate then his idea isn't bad. But I would lock in the lower rate first just to make sure.

Go to www.motleyfool.com they have a bunch of calculators.

[John712]

Bankruptcy

[ImmaSquashYou]

credit card debts first. CC debts are what i guess call unecesary loans?? A personal loan was handed out because of the credit that you have. So if buying a house, the personal loan will be viewed less of the CC. So get rid of that CC debt first. I for one want to buy a house...but can't afford it because of all the CC debts.....n soon, my student loans will be kicking in. YIKES!!!!

[IrocRob]

If the idea is to "improve" your credit rating, and the only debts are what
is listed, pay down the credit card first; but don't pay it off completely.

These companies are in business to make money, they want you to carry
a balance from one month to the next, but only a small portion of your
total available credit line. That way they maximize their profits by collecting
interest on your debt as well as service fees from vendors.

As long as you continue to use the card, and continue to pay it down and
keep the balance owed to something managable, (25% of available credit)
then you are a perfect consumer in the eyes of the empire.
Trans Union, Equifax and Experian ARE the empire.

BUT - Your "credit score" is just the beginning....

http://articles.moneycentral.msn.com...aspx?gt1=10620

[BadKitty]

Bankruptcy rules!


I filed Chapter 13 almost 4 years ago. My credit score is currently over 750. I have no bills now, and no worries. My mental health alone was worth the credit ding. Was stressing WAAAY too much about the $75k in credit card debt i had.


Fucking divorce.

[SPL170db]

Originally Posted by BadKitty

Was stressing WAAAY too much about the $75k in credit card debt i had.

I couldn't even fathom that...............I hope I never have to

[Cakes206]

Originally Posted by BadKitty

$75k in credit card debt

How does that even happen?