Another point to consider: if the interest on a debt is below a certain percentage–somewhere between 5-10%, I’d say, but closer to 5%–then you may be better off paying the minimum on it and investing the money.
For instance, I have a $10,000 student loan at an interest rate of about 4%. I could have paid it off pretty easily by now, but instead I’m paying the minimum on it and putting that money into index funds at Sharebuilder.
This is absolutely true if your employer has a 401(k) or the like that it matches. If you’re not at least socking enough away to get the full match, that should be high on the priority list.
Of course, Jodi’s point stands–it’s good for your credit rating to be well below your credit limit on your cards. It’s hard to calculate how much that’s worth, but if a major purchase like a house is in the intermediate horizon, it’s probably substantial. If not for that, I wouldn’t be in much of a hurry to pay off a loan at 3%.
Not much more to offer by me except to suggest that you consider getting a mortgage refi or home equity loan to pay down the high interest credit cards.
This way, your payments will be less per month overall and you can generally deduct the interest on your taxes.
Can you guarantee you can invest and get 10-20 percent. Nope. But if you pay off credit cards you are paying yourself that much. I have heard you should not payoff and cancel a card. For some reason that is a black mark. Shred it and forget it ok. But actually dropping it is bad. Also credit cards are prvy to all your debts. If you have a dispute or are late with a non related debt, they trigger an automatic jump in your rate to max. I do not like to be vulnerable to those jerks.
In the hypothetical above, with a 4% interest rate on as tudent loan, it is nearly guaranteed that over the long term (which is probably the term of the loan) you can beat that by investing in the market. Hell, I’ve got a money market account paying me 5% right now, and there are plenty of CDs paying 5% which are FDIC insured (I think).
One thing to keep in mind for HELOCs is the dreaded “alternative minimum tax” which nails a lot of people who claim home mortgage interest which is not directly a result of financing your home or improving it.
WhyNot, unless you’re planning on changing your living arrangements or taking out other large loans int he near future, it’s a much better bet to pay off the loan at 24% than the one at 10%. Get that one down as far as you can, and then worry about tackling the other balance. Your credit is apparently already shit anyhow if people are socking you with 24% interest rates, so your best bet is to get yourself out from under that exhorbitant interest rate.