Repaying Debt and Saving - Difficult Situation
She seems to be paying an inordinate amount of money for car payments. $850/month is just too high. She may be able to get by on public transit, depending on where she lives, but if not, she needs to look at selling her car and picking up a cheap second-hand vehicle. Public transit would probably save her $750/month. Going to a cheaper car should still save her $300 - $400/month. Next, phone and cable. These are certainly nice, but they are rarely necessities. I do not have cable t.v., for example. I do have a cell phone, and I do have Internet (a requirement of my job), but no cable t.v. She may be able to save some money there. My guess is that she could save $125/month here, though I may be biased on how much it costs to heat a Canadian home in our cold, cold winters. And, of course, the college payment. $900 - $1000 a month? I understand that she is paying this so that your sister can attend college. That's very nice, but it certainly sounds like your mother cannot afford that. On the other hand, if this is repayment of college expenses already incurred, there may be no choice here. Rent, at $1625/month. I have no idea what that gets you in NJ, but perhaps she could rent out a room. It's not inconceivable that she could bring in $1000/month from doing so, though obviously that's going to very much depend on the real estate/rental market where you live. Alternatively, she could move out and move in with someone else and that should certainly get her share of the rent down to $800 - $1000/month or thereabouts, and most likely cut her utility bills, also. I've identified a number of places where she can save money. No doubt, the budget is tight, but I think she's spending on far more than just bare essentials. One thing that concerns me here is that she appears to have no emergency funds and very little for entertainment, other than cable t.v. If at all possible, she needs to cut her budget down so that she is not living paycheque to paycheque and has money to cover, for example, emergency car repairs. And I'd really like to see her have more than $50/month for expenses (which I'm guessing is entertainment). It may not be possible, of course, but I would most definitely say she should not be paying for your sister's college if this places her in such dire financial risk. Easier said than done, of course. Most certainly, I would not even consider cutting the health insurance, by the way. Another approach would be to look at how her expenses will go down when your sister is done school and perhaps cleared up other expenses. It may be worth borrowing from family and friends, knowing that in a year, her expenses will go down $500/month. That makes her budget manageable. Additionally, the debt repayment presumably will finish at some point. The point I'm trying to make is that, in a year, her budget will be just about manageable, and she may be able to get there with smaller trims in the immediate future. Just a thought, but have you considered approaching your sister about assuming the student loans or repaying your mother (even if it is a small amount/month) for financing her college education? If she is in her last year of college, in theory she should be earning at least some income within the next 2 years. Also, it doesn't seem like a lot to ask considering the sacrifices (both financial and otherwise) that a single mom probably made over the years. I'm sure your mom would be hesitant to ask as it seems like she prioritizes her children above herself by your description of the situation, but I bet if you could talk the sister into the mom would grudgingly accept it if she really is in such a tight financial situation. "Like everybody else I'm picking up on the school loans - you're mother isn't exactly earning a massive amount of money given her cost of living, why is she taking out student loans that benefit you and your sister? I'm not trying to be offensive but it's fairly obvious that she can't afford it. As a first step I think you should at least take over paying your own student loans (you sound like you're out of college already and if you have $8k to ""lend"" to your mother you probably have enough money to pay the student loans that benefited you, after all) or as someone else also recommended, assume your loans. As to your sister, maybe it's time for her to get (another) job to pay for the tuition so her mother doesn't have to go further into debt. Again, I'm not trying to be mean here but your mother is digging herself deeper and deeper into a hole because of the tuition. Something's gotta give, and delivering pizza or getting a paper round is a small sacrifice here. Next, the car - unless she has a managed to work herself out of some of this mess, I would consider getting a much cheaper car instead. This is provided that she isn't upside down on the loan. Personally I wouldn't trade in a vehicle with an upside down loan, if anything that's another bad financial decision. Assuming that she isn't upside down on the loan and has some equity in the car, I would seriously consider selling the car and using the equity to buy something small and cheap. That should also hopefully reduce the cost of gas and maybe insurance somewhat. I think these points are probably the quickest steps that can be taken towards recovering this situation. You already mentioned the longer term plans like downsizing the apartment, but TBH I'm not sure that this is really necessary. The big elephant in the room are the college costs and removing those from the equation would give her a serious amount of breathing room." I see one clear thing to help: She lives alone.  Why does she need a two bedroom place? Your mother has a problem that is typical for a woman with children.  She is trying to help her children have a good life, by sacrificing to get them to a point where they can live comfortably on their own.  Though she has a difficult situation now, much of the problems come from a very few choices by her and her children, and her situation can be fixed. Let me point out a few of the reasons why she has come to this point: My mother is a single mom... she is turning 50 this summer... she has about $60k in school loans from the college I attended... she has payments of $500/month ($10k) to my sisters college... she lives on her own in a 2 bedroom apartment... Mother's current 'income statement', Income Essentials (total $3131, 71%, too high, goal $2200) Lifestyle (total $150, low, she should have $500-900 to live her life) Financial (total $1350, 31%) Some observations and suggestions: Even though the $1625 rents seems high, your mom might enjoy her apartment and consider part of her rent ($300) a lifestyle choice (spending money for time), and the higher rent may make sense.  But the rent is high for her income. Your mom should be spending more on food, and budget $200/month. Your mom should be saving money for investments and retirement.  She should be putting 10% into savings ($440), plus any IRA/401K pretax savings. Your sister should be paying for her own college.  She should take her own student loans, so that her mother can save for retirement.  And since she only has $10K left, an alternative would be that you could loan her the money, and she could repay you when she graduates (you have money, as you loaned your mother $8K). You should be repaying the $500/month on the $60K student loan your mother took to help you get through college.  You have benefited from the education, and the increased opportunity the college education has given you.  Now is the time to accept responsibility and pay your debts.  You could at least agree to split the expense with her, and were you paying even $300/month (leaving $200 for her), that would still fix her budget. Your mom should get a car that is paid for and reduce her transportation expenses, until the $350/month debt is resolved.  She should resolve to spend no more than $300/month for a car, and with $100/month for insurance be under 10% for her vehicle. Since your mother lives in the US (NJ) she could avoid the $350/month debt payment though BK.  But since there are other solutions she could exercise to resolve her problems, this is probably not needed. You mom could consider sharing her apartment to share expenses.  Paying $1625 for an apartment for one person seems extravagant.  She might enjoy sharing her apartment with a room-mate. That is about it.  Once her children take responsibility for their lives, your mom will have a manageable budget, and less stress in her life. Mother's revised 'income statement', Income Essentials (total $2721, 62%, high, need to reduce by $500) Lifestyle (total $450, 10%, low) Financial (total $990, 23%) While you and your sister have these changes, Summary of changes: Some rent is lifestyle, reduced car loan by $200, sister pays her college $500, you pay your college $300, mom saves 10% of her income.  Once your sister graduates and starts to repay you for your help with her college, you can take over paying the remainder of your loans, saving your mom an additional $200/month. Given the listed expenses, this problem will not have a nice solutions. So lets quickly go through them and see when the most pressing ones can be dealt with: Solved within 1 year: 900 Solved within a few years: 1300: 900+400 You may be able to save a couple of hundred on the rest, but just take a minute to look at the above. Within 1 year she will be able to 'break even' and within a few years she will be able to live fairly comfortably.  She will eat through her funds in about 10 months, which should coincide with the end of the tuition costs. If you could just sponsor her a little bit, or just be there for her in case of unexpected expenses, she should make it till the end of the year after which things are looking up and she will have a healthy surplus each month.  Soon you and your sister can probably help her build up a nice buffer quickly, after which her worries should be over.
Well, if someone who owes me money defaults, I lose the money he promised to pay me.    To me that would be a huge moral obstacle for declaring myself bankrupt.  I was raised in believing that you keep your promises. "Agree with Randy, if debt and debt reduction was all about math, nobody would be in debt.  It is an emotional game. If you've taken care of the reasons you're in debt, changed your behaviors, then start focusing on the math of getting it done faster.   Otherwise, if you don't have a handle on the behaviors that got you there, you're just going to get more rope to hang yourself with.  I.e., makes sense to take a low-interest home equity loan to pay off high-interest credit card debt, but more likely than not, you'll just re-rack up the debt on the cards because you never fixed the behavior that put you into debt. Same thing here, if you opt not to contribute to ""pay off the cards"" without fixing the debt-accumulating behaviors, what you're going to do is stay in debt AND not provide for retirement. Take the match until you're certain you have your debt accumulation habits in check." You should check out Dave Ramsey's Baby Steps.  He has an great and well organized plan for getting out of debt and building wealth.  My wife and I have followed the plan and will be paying off our home this year :)  His advice on debt payments is to pay off the smallest balance first.  This helps motivate you and your husband to push harder on your debts.   Once the first pay is paid the money that would have gone to that debt is applied to the next smallest debt and so on.  This is called a 'debt snowball' since by the end you will have plenty of money to pay that last few debts.  While working on the smallest debt, making minimum payments on the others. Stop using the credit cards entirely! Don't use gimmicks to avoid facing the reality of the debt.  Close your accounts and commit to never borrowing money again. This is a huge physiological shift.  I used credit cards all the time for decades, that is a thing of the past for us, we pay cash or don't buy it.  In your case, paying the 80% interest loan off is likely to be priority.  I didn't even realize that was legal.  Hopefully that is also the smallest balance.   Start making a monthly budget and sticking to it.  Check out Dave's 'irregular income' budget form, it is meant for couples in your situation.  The first steps will be to pay food, rent, utilities and transportation.  After that, list your debts in priority order and pay them as your husbands income comes in during the month.  Don't despair, you two can get your financial life cleaned up! You just need a good plan and a lot of focus. "Doing what you suggest may actually be helpful. Today, you have wealth of 145k and debt of 140k, for net wealth of 5k. Your interest incurred is $671/month and your interest earned is $211, for a total loss of $460/month, just below the 491 $/month you are saving, so your total saving is $31/month currently. However, even though in total, you have more money each month than the month before, you are getting more debt and thus more interest to pay each month. Your interest earned is increasing much slower. That $31/month you are currently able to save? By the time you hit 51, that has become $0/month and is still dropping. By 60? Your debt has overtaken your retirement savings - that $5 net worth you have now is gone. If you were to withdraw money from your retirement to pay off your debt (with the $32k penalties) you would have wealth of 70k and debt of 97k, for a net wealth of -27k (i.e. net debt). Obviously, the above is not good. However, you reduce your monthly interest paid to $465, while also reducing your interest earned to $102. This is a total loss of $365/month, so you are saving $126/month.  Note that in this case, your $491 monthly repayment is higher than the interest you have to pay on the account, this means that each month, your interest payment becomes lower, thus you pay off more and more each month. Your balance would be getting better each month (and at a faster rate each month. Your net wealth would be back in positives and above your wealth on your current trajectory before you hit 62. By 65, you will have $9000 of net wealth if you use your retirement savings now, as opposed to $9000 net debt if you don't. And just adding a few things on to the end 1) This is just the maths of it, and does not take into account your behaviour. If having that debt accruing is helping to motivate you to give up on luxuries, then this analysis does not apply. I am assuming that the $491/month is literally all you can save, and that no matter what changes, you will always deposit that $491. If you do not think you can continue to deposit that $491 if you stop seeing such high interest accruing, then do not do this. 2) I am assuming your interest earned on your IRA is 1.75%. If this is not the case, then please let me know, and I can adjust my numbers accordingly. From http://www.usatoday.com/story/news/politics/2014/01/28/obama-state-of-the-union-myra-savings-plan/4992743/ 3) I'm assuming all numbers you mentioned are accurate, and will stay constant (interest rates may not) 4) This is not professional, financial advice. I am just a person on the internet.  5) This goes without saying (and will probably go down as well as ""let them eat cake"" did), but saving more money each month will be a more powerful, risk free way to get out of this problem. Work a 2nd job, cut costs however you can. 6) Sorry if you were looking for something more motivational or sugar coated.  7) Best of luck, feel free to ask any questions. Graph below in red is your current trajectory, and blue is if you withdraw from your retirement to pay off your debt." "All of the provided advice is great, but a slightly different viewpoint on debt is worth mentioning. Here are the areas that you should concentrate your efforts and the (rough) order you should proceed. Much of the following is predicated upon your having a situation where you need to get out of debt, and learn to better budget and control your spending. You may already have accomplished some of these steps, or you may prioritize differently. Many people advise prioritizing contributing to a 401(k) savings plan. But with the assumption that you need advise because you have debt trouble, you are probably paying absurd interest rates, and any savings you might have will be earning much lower rates than you are paying on consumer debt. If you are already contributing, continue the plan. But remember, you are looking for advice because your financial situation is in trouble, so you need to put out the fire (your present problem), and learn how to manage your money and plan for the future. Compose a budget, comprised of the following three areas (the exact percentages are fungible, fit them to your circumstances). Here is where planning can get fun, when you have freed yourself from debt, and you can make choices that resonate with your individual goals. Once you have ""put out the fire"" of debt, then you should do two things at the same time. As you pay off debt (and avoid further debt), you will find that saving for both independence and retirement become easier.  The average American household may have $8000+ credit card debt, and at 20-30%, the interest payments are $150-200/month, and the average car payment is nearly $500/month.  Eliminate debt and you will have $500-800/month that you can comfortably allocate towards retirement. But you also need to learn (educate yourself) how to invest your money to grow your money, and earn income from your savings. This is an area where many struggle, because we are taught to save, but we are not taught how to invest, choose investments wisely and carefully, and how to decide our goals.  Investing needs to be addressed separately, but you need to learn how. Live in an affordable house, and pay off your mortgage.  Consider that the payment on a mortgage on even a modest $200K house is over $1000/month. Combine saving the money you would have paid towards a mortgage payment with the money you would have paid towards credit card debt or a car loan. Saving becomes easy when you are freed from these large debts." "Although there is no single best answer to your situation, several other people have already suggest it in some form: always pay off your highest after-tax (!) interest loan first! That being said, you probably also have heard about the differentiation for good debt vs. bad debt. Good debt is considered a mortgage for buying your primary home or, as is the case here, debt for education. As far as I am concerned, those are pretty much the only two types of debt I'd ever tolerate. (There may be exceptions for health/medical reasons.) Everything else is consumer debt and my personal rule is, don't buy it if you don't have the money for it! Meaning, don't take on consumer debt. One other thing you may consider before accelerating paying off your student debt, the interest paid on it may be tax deductible. So you should look at what the true interest is on your student loan after taxes. If it is in the (very) low single digits, meaning between 1-3%, you may consider using the extra money towards an automatic investment plan into an ETF index fund. But that would be a question you should discuss with your tax accountant or financial adviser. It is also critical in that case that you don't view the money invested as ""found"" money later on, unless you have paid off all your debt. (This part is the most difficult for most people so be very cautious and conscious if you decide to go this route!) At any rate, congratulations on making so much progress paying off your debt! Keep it going." As your main concern seems to be that you are not sure whether you can ever get a house, and actually support the expenses it incurs when you have one, here is a very simple answer:  You say you are currently decreasing your creditcard debt by 2k per month. At that rate it will be finished within 2 years. Try to pay it off completely, if this succeeds in the next 2 years you can be confident that you can afford a 500k house. (Paying back 50k high interest debt in 2 years, is VERY roughly equivalent to payng back 500k low interest debt over 20 years , a reasonable time period in my environment). So, just pay back the creditcard as fast as you can, if two years sounds like a long time there is nothing stopping you to pay it back a little bit faster even!  Note: This is written under the assumption that your student loan burden will not increase over time. "There are two solutions. One is financially better, the other is psychologically better.  Financially better: You should pay off loans in the order of interest rate, so the 9% first, then the six percent, then the 3-4%. If you pay back $1000, the first one saves you $90 a year in interest, the second saves you $60, the third $30-$40 a year. Every year until everything is paid back.  Psychologically better: Some people have psychological problems paying back debt, and it is better for them to pay back small loans first. If you feel better having two loans instead of three, and feeling better makes you able to save money and pay back the other loans, while having three loans would make you depressed and unable to make savings - pay back the smaller loan.  If you don't have that kind of problem, use the ""financially better"" method." "I think the real problem here is dealing with the variable income. The envelope solution suggests the problem is that your brother doesn't have the discipline to avoid spending all his money immediately, but maybe that's not it. Maybe he could regulate his expenses just fine, but with such a variable income, he can't settle into a ""normal"" spending pattern. Without any savings, any budget would have to be based on the worst possible income for a month. This isn't a great: it means a poor quality of life. And what do you do with the extra money in the better-than-worst months? While it's easy to say ""plan for the worst, then when it's better, save that money"", that's just not going to happen. No one will want to live at their worst-case standard of living all the time. Someone would have to be a real miser to have the discipline to not use that extra money for something. You can say to save it for emergencies or unexpected events, but there's always a way to rationalize spending it. ""I'm a musician, so this new guitar is a necessary business expense!"" Or maybe the car is broken. Surely this is a necessary expense! But, do you buy a $1000 car or a $20000 car? There's always a way to rationalize what's necessary, but it doesn't change financial reality. With a highly variable income, he will need some cash saved up to fill in the bad months, which is replenished in the good months. For success, you need a reasonable plan for making that happen: one that includes provisions for spending it other than ""please try not to spend it"". I would suggest tracking income accurately for several months. Then you will have a real number (not a guess) of what an average month is. Then, you can budget on that. You will also have real numbers that allow you to calculate how long the bad stretches are, and thus determine how much cash reserve is necessary to make the odds of going broke in a bad period unlikely. Having that, you can make a budget based on average income, which should have some allowance for enjoying life. Of course initially the cash reserve doesn't exist, but knowing exactly what will happen when it does provides a good motivation for building the reserve rather than spending it today. Knowing that the budget includes rules for spending the reserves reduces the incentive to cheat. Of course, the eventual budget should also include provisions for long term savings for retirement, medical expenses, car maintenance, etc. You can do the envelope thing if that's helpful. The point here is to solve the problem of the variable income, so you can have an average income that doesn't result in a budget that delivers a soul crushing decrease in quality of living." The good debt/bad debt paradigm only applies if you are considering this as a pure investment situation and not factoring in: A house is something you live in and a car is something you use for transportation. These are not substitutes for each other! While you can live in your car in a pinch, you can't take your house to the shops. Looking at the car, I will simplify it to 3 options: You can now make a list of pros and cons for each one and decide the value you place on each of them. E.g. public transport will add 5h travel time per week @ $X per hour (how much you value your leisure time), an expensive car will make me feel good and I value that at $Y. For each option, put all the benefits together - this is the value of that option to you. Then put all of the costs together - this is what the option costs you. Then make a decision on which is the best value for you.  Once you have decided which option is best for you then you can consider how you will fund it. "I think you're asking yourself the wrong question. The real question you should be asking yourself is this:  ""Do I want to a) give my parents a $45,000 gift, b) make them $45,000   loan, or c) neither?"" The way you are talking in your question is as if you have the responsibility and authority to manage their lives. Whether they choose bankruptcy, and the associated stigma and/or negative self-image of financial or moral failure, or choose to muddle through and delay retirement to pay off their debt, is their question and their decision.   Look, you said that loaning it to them was out, because you'd rather see them retire than continue to work. But what if they want to continue to work? For all the stress they're dealing with now, entrepreneurial people like that are not happy  You're mucking about in their lives like you can run it. Stop it. You don't have the right; they're adults. There may come a time when they are too senile to be responsible for themselves, and then you can, and should, step up and take responsibility for them in their old age, just as they did for you when you were a child. But that time is not now. And by the way, from the information you've given, the answer should be C) neither. If giving or loaning them this kind of money taps you out, then you can't afford it." "Your goals are excellent. I really admire your thoughts and plans, and I hold you in high esteem. Good credit is indeed an important thing to have, and starting young is THE smart idea with respect to this. I see that you have as a goal the purchase of a home. Indeed, another fine ambition. (Wow, you are a different breed from what I normally encounter on the internet; that's for sure !) Since this won't happen overnight, I would encourage you to think about another option. At this point in your life you have what few people have: options, and you have lots of them. The option I would like to suggest you consider is the debt free life. This does NOT mean life without a credit card, nor does it mean living with ones parents all their days. In its simplest form, it means that you don't owe anybody anything today. An adapted form of that; with the reality of leases and so on, is that you have more immediate cash in the bank than you have contractual responsibilities to pay others. e.g., if the rent on a place is X, and the lease is 12 months, then you don't sign until you have 12X in the bank.  That's the idea. If there is anything good that these past 10 years of recession and financial disasters have provided us as a nation, it is a clear picture presented to our young people that a house is not a guaranteed way to riches. Indeed, I just learned this week of another couple, forced out by foreclosure again. Yes, in the 1970s and 1980s the formula which anyone could follow was to take a mortgage on a single family house; just about any house in any community; and ten years later double your money, while (during those ten years) paying about the same (and in a few years, actually less) amount of money as you would for an apartment with about half the space. Those days were then, not now, and I seriously doubt that I will ever see them again in my lifetime. You might, at your age, one day. In the mean time, I would like to suggest that you think about that word options again; something that you have that I don't. If your mind is made up for certain that a house is the one and only thing you want, okay; this does not apply. During this time of building your credit (we're talking more than a year) I would like to encourage you to look at some of the other options that are out there waiting for you; such as... I also encourage you to take a calculator and a spreadsheet (I would be surprised if there is no freeware out there to do this with a few clicks) and compare the past 30 years of various investments. For example... It is especially educational if you can see line charts, with the ups and downs along the way. One last thing; about the stock market, you have an option (I love that word when people your age are actually thinking) called ""dollar cost averaging"". If you are not aware of this concept, just ask and I will edit this post (although I'm confident it has been explained by others far better than myself on this very site). Hit just about any solid stock market investment (plain old mutual fund, even with a load, and it will still work) and I believe you'll see what I'm trying to get across. Still, yes, you need a roof, and a young person should clearly plan on leaving parents in a healthy and happy way; so again, if the house is the one and only goal, then go for it kid (uhm, ""kid"", if you're still under 18). All the best. Do remember that you will be fixing the pipes, not the maintenance guy." Congratulations for achieving an important step in the road to financial freedom. Some view extending loan payment of loans that allow the deduction of interest as a good thing. Some view the hit on the credit score by prematurely paying off an installment loan as a bad thing.  Determining the order of paying off multiple loans in conjunction with the reality of income, required monthly living expense, and the need to save for emergencies is highly individualized.  Keeping an artificial debt seems to make little sense, it is an expensive insurance policy to chase a diminishing tax benefit and boost to a credit score. Keep in mind it is a deduction, not a credit, so how much you save depends on your tax bracket.  It might make sense for somebody to extend the loan out for an extra year or two, but you can't just assume that that advice applies in your situation. Personally I paid off my student loan early, as soon as it made sense based on my income, and my situation. I am glad I did, but for others the opposite made more sense. "Thirty thousand in credit card debt is a ""big elephant to eat"" so to speak.  But you do it by taking a bite at a time.  One positive is that you do not want to borrow from your 401K.  Doing so is a horrible idea. The first question you have to ask yourself and understand, is how you accumulated 30K in credit card debt in the first place?  Most people get there by running up a relatively small amount, say 5K, and playing the zero transfer game a few times.  Then add in a late payment, and a negative event or two (like the car breaking down or a trip to the emergency room) and poof a large amount of credit card debt.   Obviously, I have no idea if this is how you got there, and providing some insight might help.   Also, your age, approximate income, and other debts might also help provide more insight.  I assume you are still working and under age 59.5 as you are talking about borrowing from your 401K. Where I come from is that my wife (then girlfriend) found ourselves under stifling debt a few years ago.  When we married, we became very intentional and focused on ridding ourselves of debt and now sit completely debt free (including the house).  During our debt payoff time, we lived off of less than 25% of our salary.  We both took extra jobs when we were able.  Intensity was our key.     If I were you, I would not refi the house.  There are costs associated with this and why would you put more debt on your home? I might cash out the annuity provided that there are no negative tax consequences and depending on how much you can get for it.  Numbers are the key here.  However, I feel like doing so will not retire this debt. The first thing you need to do is get on a written budget.  A game plan for spending and stick to it.  If you are married, your spouse has to be part of this process.  The budget has to be fresh each month, and each month you and your wife should meet.  To deviate from the budget, you will also need to have a meeting.  My wife and I still do this despite being debt free and enjoying very healthy incomes. Secondly, it is about cutting expenses.  Cable: off.  No eating out or vacations.  Cut back on cell phone plans, only basic clothing.  Gift giving is of the $5 variety and only for those very close to you.  Forget lattes, etc.  Depending on your income I would cut 401K contributions to zero or only up to the company match (if your household income is above 150K/year). Third, it is about earning more.  Ebay, deliver pizzas, cut grass, overtime, whatever.   All extra dollars go to credit card balance reduction.  At a minimum, you should find an extra $1000/month; however, I would shoot for 2K.  If you can find 2K, you will be done with this in 13 months.  I know the math doesn't work out for that, but once you get momentum, you find more. How good will it feel to be out from under this oppression next March?  I know you can do this without cashing in the annuity or refinancing.  Do you believe it?" When paying off multiple debts there is a protocol that many support. Payoff your debts according to the snowball method. The snowball method proposes that you make minimum payments on all debts except the smallest one. Payoff the smallest debt as quickly as possible. As smaller debts are paid off, that makes one less minimum payment you need to make, leaving you with more money to put against the next smallest debt. So in your case, pay off the smaller debt completely, then follow up on the larger one by making regular payments at least equal to the sum of your two current minimum payments. You'll see immediate progress in tackling your debt and have one less minimum to worry about, which can serve as a little safety of it's own if you have a bad month. As to saving the thousand dollars, that is pragmatic and prudent. It's not financially useful (you won't make any money in a savings account), but having cash on hand for emergencies and various other reasons is an important security for modern living.  As suggested in another answer, you can forgo saving this thousand and put it against debt now, because you will have a freed up credit card. Credit can certainly give you that same security. This is an alternative option, but not all emergencies will take a credit card. You typically can't make rent with your credit card, for example. Good luck paying your debts and I hope you can soon enjoy the freedom of a debt free life.