What should I do with $4,000 cash and High Interest Debt?
Every $1,000 you use to pay off a 26% interest rate card saves you $260 / year.  Every $1,000 you use to pay off a 23% interest rate card saves you $230 / year. Every $1,000 you put in a savings account earning ~0.5% interest earns you $5 / year. Having cash on hand is good in case of emergencies, but typically if your debt is on high interest credit cards, you should consider paying off as much of it as possible. In your case you may want to keep only some small amount (maybe $500, maybe $1000, maybe $100) in cash for emergencies. Paying off your high interest debt should be a top priority for you. You may want to look on this site for help with budgeting, also. Typically, being in debt to credit card companies is a sign of living beyond your means. It costs you a lot of money in the long run. "If it were me, I would pay off the 23%er.  That is as long as you don't borrow anymore.  Please consider ""your hair on fire"" and get that 26%er paid off as soon as possible.   From my calculations your big CC is sitting at 26% has a balance of 20K.  Holy cow girl, what in the world?  The goal here is to have that paid off in less than one year.  Get another job, work more than you have in your life.   Others may disagree as it is more efficient to pay down the 26%er.  However, if you pay it all of within the year the difference only comes to $260.  If you gain momentum, which is important in changing your financial life, that $260 will be meaningless.  With focus, intensity, and momentum you can get this mess cleaned up sooner than you think. However, if you are going to continue to rack up credit card debt at these rates, it does not matter what you do." The difference in interest is not a huge factor in your decision.  It's about $2 per month.   Personally I would go ahead and knock one out since it's one less to worry about.  Then I would cancel the account and cut that card up so you are not tempted to use it again. To address the comments... Cutting up the card is NOT the ultimate solution.  The solution is to stop borrowing money... Get on a strict budget, live on less than what you bring home, and throw everything you can at this high-interest debt.   The destroying of the card is partly symbolic - it's a gesture to indicate that you're not going to use credit cards at all, or at least until they can be used responsibly, not paying a DIME of interest.  It's analogous to a recovering alcoholic pouring out bottles of booze.  Sure you can easily get more, but it's a commitment to changing your attitude and behavior. Yes leaving the card open will reduce utilization and improve (or not hurt) credit score - but if the goal is to stop borrowing money and pay off the other card, then once that is achieved, your credit score will be significantly improved, and the cancelling of the first card will not matter.  The card (really both cards) should never, ever be used again. With all due respect to The David, the $1000 is best put against 20%+ debt, no sitting in checking as part of some emergency fund.  I'd agree with the decision to pay off the lower rate card. Why? Because we can do the math, and can see the cost in doing so. Low enough that other factors come in, namely, a freed up card. That card can function as the emergency one in the short term. Long term, once these high rate cards are paid off, you'll build your proper emergency fund, but the cost is too high right now.  The $4000 is a nice start, but the most important thing is to get your budget under control. Only you can decide how much you can cut back, and go after this debt as if it were life or death. I see some merit in the other answers, which are all based on the snowball method. However, I would like to present an alternative approach which would be the optimal way in case you have perfect self-control. (Given your amount of debt, most likely you currently do not have perfect self-control, but we will come to that.) The first step is to think about what the minimum amount of emergency funds are that you need and to compare this number with your credit card limit. If your limits are such that your credit cards can still cover potential emergency expenses, use all of the 4000$ to repay the debt on the loan with the higher interest rate. Some answer wrote that Others may disagree as it is more efficient to pay down the 26%er. However, if you pay it all of within the year the difference only comes to $260. This is bad advice because you will probably not pay back the loan within one year. Where would you miraculously obtain 20 000$ for that? Thus, paying back the higher interest loan will save you more money than just 260$. Next, follow @Chris 's advice and refinance your debt under a lower rate. This is much more impactful than choosing the right loan to repay. Make sure to consult with different banks to get the best rate. Reducing your interest rate has utmost priority! From your accumulated debt we can probably infer that you do not have perfect self-control and will be able to minimize your spending/maximize your debt repayments. Thus, you need to incentivize yourself to follow such behavior. A powerful way to do this is to have a family member or very close friend monitor your purchase and saving behavior. If you cannot control yourself, someone else must. It should rather be a a person you trust than the banks you owe money. If your credit is good, you should immediately attempt to refinance your high rate credit cards by transferring the balance to credit cards with lower interest rates.You might want to check at your local credit union, credit unions can offer great rates. Use the $4000 to pay off whatever is left on the high rate cards. If your credit is bad, I suggest you call your credit card company and try to negotiate with them. If they consider you a risk they might settle your account for fraction of what you own if you can send payment immediately. Don't tell them you have money, just tell them your are trying to get your finances under control and see what they can offer you. This will damage your credit score but will get you out of depth much sooner and save you money in the long term. Also keep in mind that if they do settle, they'll close your account. That way, you leverage the $4000 and use it as a tool to get concessions from the bank. 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. Patti - I realize, of course, that you pose an either/or question. It seems the question closes the door on other potential solutions. I'm going to suggest a slightly different approach. Most answers seem to suggest paying off the lower rate card to clear it. Some answers / comments also talk about emergency funds. One risk of paying off a card is that the card issuer may choose to reduce your credit limit if they see you as high risk, to prevent you re-spending the money. If you don't trust yourself with the card then this could be a good thing (and remember you're always free to ask for a limit decrease). But if you want access to emergency funds, then I would suggest paying half onto each card. That way if one card cuts you off, you have a chance of still having access to the other in an emergency. "This is the kind of scenario addressed by Reddit's /r/personalfinance Prime Directive, or ""I have $X, what should I do with it?"" It follows a fairly linear flowchart for personal spending beginning with a budget and essential costs. The gist of the flowchart is to cover your most immediate costs and risks first, while also maximizing your benefits. It sounds like you would fall somewhere around steps 1 and 3. (Step 2 won't apply since this is not pretax income.) If you don't already have at least $1000 reserved in an emergency fund, that's a great place to start. After that, you'll want to use the rest to pay down your debt. Your credit card debt is very high interest and should be treated as a financial emergency. Besides the balance of your gift, you may want to throw whatever other funds you have saved beyond one month's expenses at this problem. As far as which card, since you have multiple debts you're faced with the classic choice of which payoff method to use: snowball (lowest balance first) or avalanche (highest interest rate first). Avalanche is more financially optimal but less immediately gratifying. Personally, since your 26% APR debt is so large and so high interest, I would recommend focusing every available penny on that card until it is paid off, and then never use it again. Again, per the flowchart, that means using everything left over after steps 0-2 are fulfilled." If we're including psychological considerations, then the question becomes much more complicated: will having a higher available credit increase the temptation to spend? Will eliminating 100% of a small debt provide more positive reinforcement than paying off 15% of a larger debt? Etc. If we're looking at the pure financial impact, the question is simpler. The only advantage I see to prioritizing the lower interest card is the float: when you buy something on a credit card, interest is often calculated for that purchase starting at the beginning of the next billing cycle, rather than immediately from the purchase date. I'm not clear on what policies credit card companies have on giving float for credit cards with a carried balance, so you should look into what your card's policy is.  Other than than, paying off the higher interest rate card is better than paying off the lower interest rate. On top of that, you should look into whether you qualify for any of the following options (presented from best to worst): I like the answers others gave, if it's some substantial debt you definitely could go the bankruptcy route but it damages your future, also it's morally unethical to borrow all that money and not intend to pay. Second, if you can pay off the entire balance and clear out the 23% interest than I'd do that first. One less bill to concern yourself with. Now let's say you've been making $100 payments monthly on each card (my assumption for this examples sale) now instead of paying $100 to the remaining cards balance each month and saving the other $100, pay $200 against the remaining credit cards balance. By not taking home any money this way you are tackling the liability that is costing you money every month. Unless you have a great investment opportunity on that remaining $1000 or haven't created much of an emergency fund yet, I'd consider putting more of that money towards the debt. Gaining 0.01% on savings interest still means you're eating 25.99% in debt monthly. If you're able to I'd venture out to open a zero interest card and do a balance transfer over to that new card, there will be a minimal transfer fee but you may get some cash back out of it and also that zero interest for a year would help hold off more interest accruing while you're tackling the balance.
To confirm: you say you have credit card debt of $18,000 with min. repayment of $466.06, plus on top of this you are also paying off a car loan and another personal loan. From my calculations if your monthly interest on your credit card is $237, the interest on your credit card should be about 15.8% p.a. Is this correct? Balance Transfer If you did a balance transfer of your $18,000 to a new credit card with 0% for 14 months and keep your repayments the same ($466) you would have saved yourself a bit over $3020 in interest over those 14 months. Your credit card balance after 14 months would be about $11,471 (instead of $14,476 with your current situation). If your interest after the 14 months went back to 15.8%  you would be able to pay the remaining $11,471 in 2.5 more years (keeping repayments at $466), saving 10 months off your repayments and a total of $4,781 in interest over 3 years and 8 months. The main emphasis here is that you are able to keep your repayments at least the same so you are able to pay off the debt quicker, and that your interest rate on the new credit card after the 14 months interest free is not more than your current interest rate of 15.8%. Things you should be careful about if you take this path: Debt Consolidation In regards to a Debt Consolidation for your personal loan and credit card (and possibly your car loan) into a single lower interest rate loan can be a good idea, but there are some pitfalls you should consider. Manly, if you are taking out a loan with a lower interest rate but a longer term to pay it off, you may end up paying less in monthly repayments but will end up paying more interest in the long run. If you do take this course of action try to keep your term to no longer than your current debt's terms, and try to keep your repayments as high as possible to pay the debt off as soon as possible and reduce any interest you have to pay. As you already have you credit card and personal loan with CBA talk to them to see what kind of deal they can give you. Again be wary of the fine print and read the PDS of any products you are thinking of getting. Refer to ASIC - Money Smart website for more valuable information you should consider before taking out any debt consolidation. Other Action You Can Take If you are finding that the repayments are really getting out of hand and no one will help you with any debt consolidation or reducing your interest rates on your debts, as a last resort you can apply for a Part 9 debt agreement. But be very careful as this is an alternative to bankruptcy, and like bankruptcy a debt agreement will appear on your credit file for seven years and your name will be listed on the National Personal Insolvency Index forever. Further Assistance and Help If you have trouble reading any PDS, or want further information or help regarding any issues I have raised or any other part of your financial situation you can contact Centrelink's Financial Information Service. They provide a free and confidential service that provides education and information on financial and lifestyle issues to all Australians. "Place your savings into safe interest-bearing accounts. Take out the loans.  Keep constant track of your net worth. Having 100,000$ and 80,000$ in interest free debt is better than having 20,000$.  You can always convert money + debt into less money and less debt, but you cannot always convert less money and less debt into more money and more debt. Now, there are risks; that is why you want an interest-bearing account to place your savings in to offset the debt.  This minimizes the risk.  It also reduces the return. It is arguable that you should be at your most financially risky at a young age.  I'd argue that your future earnings are your by far largest asset at this point, and as a high school student going into college those future earnings have extremely high variability. Your financial situation is extremely unpredictable; being conservative about your high-leverage student-loan + education investments is probably justified.  The fact you can manage arbitrage here means you should; and if you are careful, you can eliminate risk and get almost risk-free profit from the maneuver. If your money is in less than perfectly safe accounts, you are now doing leveraged investing and magnifying the risk and return of said investments. If your money must be spent on college or you'll be financially punished, then you may want to consider pulling it out before the last possible legal point just in case something goes wrong. Apparently 529 plans may not treat ""paying off student loans"" as a valid way to spend the money.  You may need to talk to a lawyer or accountant about the legality of using these plans to pay off student loans, and the tax/penalties involved." Not a financial adviser, but I think there is some amount of debt that's ok.  So I wouldn't suggest someone should go $200k into debt for a BA in English, but if you went somewhat into debt, say $30k, for a major with good job prospects and a high salary, it will probably be a good decision.  Which is exactly what I did, and it worked out very well for me.  I would advise students to apply to lots of schools with different entry requirements and tuition rates, just to see what their financial aid packages are like.  Very often if a $50k a year school really wants you, they'll give you some scholarships to make it more affordable.  If they don't give you enough, then you may just need to go to a cheaper school.   edit: also, if your family isn't wealthy (like mine) you'll often qualify for federal loans.  My loans from 2012 are at 3.5% interest, and my financial adviser is telling me to make the minimum payments so I can put more money in stocks. The solution is spending restraint during the growth periods and prudent application of counter-cyclical fiscal policy, especially during the slow periods. The USA embarked on a strange experiment lead be Greenspan of excessively low interest rates for a prolonged period of time. Periods of strong economic growth should feature high interest rates, periods of reduced economic growth can then be countered somewhat through monetary policy. The government should also endeavour to run surplus budgets during the good times and not be afraid of turning those into deficit budgets in the downturns. If you run a deficit budget during a period of strong economic growth, together with low cash rates you have nowhere to move when the cycle reverses.  The solution now? That is difficult. I would say that the solution now would be to raise revenues through corporate taxes and similarly increase government spending on investments aimed at stimulating the economy. Use this time to invest in the much needed infrastructure maintenance and upgrades that the USA needs. These need to be fast-tracked into action and I would therefore consider fixing infrastructure as more important than installing new infrastructure.   There are probably long-term structural adjustments that need to be looked at too, but I am not intimately familiar with the USA as I am Australian. It is clear however that Austerity during economic downturns does not help end the recession (or benign growth). It is clear to me as an observer however that employment appears to be the big issue in the USA right now, so cutting jobs is not a smart move.  Edit: I'll point out that my opinion comes from the Australian experience, our government ran surplus budgets during our period of recent growth and our reserve bank kept interest rates high. When the GFC hit us in 2008 the government almost instantly reversed its fiscal policy, going so far as mailing $900 cheques to every Australian just to get cash flowing in the economy, they then embarked upon infrastructure spending programs. Similarly the reserve bank were able to quickly and dramatically reduce interest rates. The result was that we saw 1 quarter of mildly negative growth, and positive growth ever since (hence no recession). We ran a textbook example of counter-cyclical fiscal and monetary policy which is today lauded by economists over. We now have 5% unemployment, low government debt (relative to the OECD) and high economic growth (relative to the OECD). I think you're not considering the opportunity cost of giving up your money early.  I'm not sure what the total money you have to spend, but spending extra on things you're going to buy later might not be the best choice.   Consider you could just get a credit card that does 3% (6% with fee) on groceries, 3% on gas, etc.  So you can make some money there without spending it all up front. Also, you could be turning that money into more money by investing it.  Assuming you're not going to just carry a balance and pay interest on the card, you have this cash on hand to invest. One more thing, I'm not sure of your financial situation but I don't think something like spending an extra 5k is a pittance to you (since you wanted $500 so badly).  Having the cash at hand has its own advantages even if you're just sitting on it. In short, consider if you want to follow through with this plan.  You can still keep the card. See an advisor but with a healthy level of skepticism. Question why they make the recommendations they do.  If you have debt, no the interest rate.  If CAGR &gt; interest, invest instead of immediately paying off debt.  In reality, invest the most you can.   You're young and try to live your life like you would've without the inheritance.  The longer you let that money grow in an investment untouched (and honestly that amount of money is a huge gift/surprise at your age) the more you'll thank yourself in the end.  Max out a Roth IRA - your advisor can explain that to you.  Also, you can afford to invest super aggressively since you're so young.  You could also find a variable life insurance contract to act like a Roth and grow a death benefit to continue leaving a legacy in your family line.  Sorry for the advisory vomit.  I'm sorry for the loss that led to this inheritance, but that's a great opportunity and there are a ton of options and none of them are wrong.  Best of luck! Oh, ok. You have $3.8m cash to work with in creating a low-risk investment portfolio. All you need to do is pick investment options that stick to the three objectives of the fund. You may assume all the capital is available for immediate investment ($200k out of the $4m is set aside for scholarships so it must stay liquid). I completely agree with Pete that a 401(k) loan is not the answer, but I have an alternate proposal: Reduce your 401(k) contribution down to the 4% that you get a match on.  If you are cash poor now and have debts to be cleaned up, those need to be addressed before retirement savings.  You'll have plenty of time to make up the lost savings after you get the debts paid off.   If your company matches 50% (meaning you have to contribute 8% to get the 4% match), then consider temporarily stopping your 401(k) altogether. A 100% match is very hard to give up, but a 50% match is less difficult.  You have plenty of years left ahead of you to make up the lost match.  Plus, the pain of knowing you're leaving money on the table will incentivize you to get the loans paid as quickly as possible.  It seems to me that I would be reducing middle to high interest debt while also saving myself $150 per month.  No, you'd be deferring $150 per month for an additional two years, and not reducing debt at all, just moving it to a different lender. Interest rate is not your problem.  Right now you're paying less than $30 per month in interest on these 3 loans and about $270 in principal, and at the current rate should have them paid off in about 2 years.  You're wanting to extend these loans to 4 years by borrowing from your retirement savings.   I would buckle down, reduce expenses wherever possible (cable? cell phone? coffee? movies? restaurants?) until you get these debts paid off.  You make $70,000 per year, or almost $6,000 per month.  I bet if you try hard enough you can come up with $1,100 fairly quickly. Then the next $1,200 should come twice as fast. Then attack the next $4,000. (You can argue whether the $1,200 should come first because of the interest rate, but in the end it doesn't matter - either one should be paid off very quickly, so the interest saved is negligible) Maybe you can get one of them paid off, get yourself some breathing room, then loosen up a little bit, but extending the pain for an additional two years is not wise. Some more drastic measures: