Repaying Debts, What is the Better Approach ?

[bmcneal]

We have a few debts we need to pay back. DH just got a job (he starts on Saturday) so we are obviously getting ready to start paying on them. My question is, we owe to more than one place. Should we pay them off all at the same time, or pay one off, and then pay the next one, and so on? We owe to four different people. Let's say we have $100/mo to pay on them (it will be more than that, $100/mo. is an easy number...) Should we pay $25/mo to each place all at once (4x$25=$100/mo) or pay off one person at a time? I really want to get these paid off as soon as possible...

[MeepyCat]

Are these people, or are they companies?

If it's people, particularly if it's people who talk to each other, pay them all as equally as you can. That way you don't get one or two people who are snarked that you gave money to X but not to them.

If it's companies, figure out who's charging the most interest/late fees and pay them first. Or figure out which services you most need to *absolutely* work and pay those.

[cristeen]

:

It really depends on the nature, the principal, and the interest involved. If I borrowed money from my uncle, my aunt, my cousin, and the bank, but the bank is charging me 20% while the others are only charging me 5%, then I'd talk to my family and let them know we'd be able to start paying them back soon, but do the bank first. If it's 3 banks, then who's charging the most interest? If I could get one of them completely wiped out in a month or 2, I'd probably pay that one first, if it's accruing interest.

Essentially you have to prioritize them, based upon criteria. This the criteria order I use:
Necessity (so electricity gets paid before credit card)
Interest Rate/penalties
Principal
Relationship

[bmcneal]

Alright, who we owe to is:

Bank: $504
Landlady: $775
Gas & Water: $777
Phone Company: $54

I don't know how much interest anyone is charging. (Although the landlady isn't charging interest on past due rent.) We haven't actually been put into collections on anything yet, will there be interest before that? Can I call and find out if they are going to charge any interest before they send it to collections? I've never been so much in debt, just a student loan I've already paid off, so I don't know anything about interest or anything.

[choli]

Originally Posted by bmcneal

Alright, who we owe to is:

Bank: $504
Landlady: $775
Gas & Water: $777
Phone Company: $54

I don't know how much interest anyone is charging. (Although the landlady isn't charging interest on past due rent.) We haven't actually been put into collections on anything yet, will there be interest before that? Can I call and find out if they are going to charge any interest before they send it to collections? I've never been so much in debt, just a student loan I've already paid off, so I don't know anything about interest or anything.

I'd try to pay the landlady off first. She probably needs the money most, and you won't need gas, water or phone if you have no where to live.

[Kyamo]

Originally Posted by bmcneal

We haven't actually been put into collections on anything yet, will there be interest before that? Can I call and find out if they are going to charge any interest before they send it to collections?

Yes, there is almost certainly late fees and/or interest on those bills (except I guess the rent if your landlady says there isn't. For the Gas/water and phone, check your old bills. It probably says somewhere on there what the late fees or interest is, though it may be in fine print or on the back. If its not there, they will tell you if you call. For the bank, is that a loan, or overdraft, or what? If its a loan you probably have a statement that will tell the interest, otherwise you need to call.

If all these were regular loans, I would say pay back highest interest first. But since it sounds like these are all overdue bills, you'll also need to consider other consequences like shut-offs, not only the interest.

[bmcneal]

I guess I should have been more specific, it's been a long week, I'm sorry

We moved out of state, and are living with my parents right now, so we don't need gas, water, phone, or electricity *yet* (We will, once we get our own place, but we're staying here until we pay everyone back, so we *should* be alright to get everything hooked up, since everything will have been paid.)

[bmcneal]

Originally Posted by Kyamo

Yes, there is almost certainly late fees and/or interest on those bills (except I guess the rent if your landlady says there isn't. For the Gas/water and phone, check your old bills. It probably says somewhere on there what the late fees or interest is, though it may be in fine print or on the back. If its not there, they will tell you if you call. For the bank, is that a loan, or overdraft, or what? If its a loan you probably have a statement that will tell the interest, otherwise you need to call.

If all these were regular loans, I would say pay back highest interest first. But since it sounds like these are all overdue bills, you'll also need to consider other consequences like shut-offs, not only the interest.

There is nothing about interest on the bills, so I'll have to call them. The bank was a bunch of overdrafts, so I'll have to call there, too. The gas/water was an overdue bill, they've already shut it off. We've moved (for better jobs for DH), and are staying with my parents until we get everything caught up.

[cristeen]

In that case, then I guess the first thing to do would be to contact these companies and see if you can work out a repayment plan to prevent it from going to collections. That's the first thing. If it's already gone to collections, move on to the next bill. Once you know what's in collections and what's not, you'll be in a better position to figure out what your priorities are. Know your budget going into these conversations. If you have $100/mo available to spend, and you have to split it 3 ways, then you can only afford to pay each one $33 each month. Don't be bullied into paying one of them $100/mo and letting the others go to collections. Since you've already closed the accounts, they will usually be more willing to work with you on payment plans.

First priority is keeping anything out of collections you can. Any utilities sent to collections will adversely affect your ability to get utilities in the future. Any bank balance sent to collections will adversely affect your ability to even open a bank account in the future. I've done both of these in the past, and I spent years paying for it.

If any of it has been sent to collections, ask them for the contact info for the collection agency they use. I would not contact them though until you have paid off everything that is NOT in collections. Once you've paid off everything else, contact the collection agencies one at a time and try to negotiate a settlement with them. Whether it's a payment plan or a lump sum, try to get as many of the penalties reduced/waived as you can, since they will charge you plenty of them.

Personally I'd pay back the landlady before collections. At the same time as the non-collection accounts, if possible.