Credit Card Pay Off System Question...

[lbjones]

I've got to disagree with this one. At 2.3% from ING, once you take out 25%-30% for taxes, you're not earning as much as the 1.9% is costing you.

 

If ING was paying 4%, that wouldn't be unreasonable, though.

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Darn... I forgot about the taxes. Vote libertarian.

[hegemony]

speaking of taxes...a reason I am piling on my student loan is that the interest for our household is no longer deductable

[CheapDB]

Even if the car loan was your only debt, at 1.9 you'd be better off putting extra car payment money into an ING savings.

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I've got to disagree with this one. At 2.3% from ING, once you take out 25%-30% for taxes, you're not earning as much as the 1.9% is costing you.

 

If ING was paying 4%, that wouldn't be unreasonable, though.

<{POST_SNAPBACK}>

 

I agree with rpatty, the two interest rates are too close. You'd have to find another investment that will at least outdue the inflation rate of around 3.0%. Stocks and mutual funds or CDs are probably a better option.

[rpatty]

speaking of taxes...a reason I am piling on my student loan is that the interest for our household is no longer deductable

<{POST_SNAPBACK}>

 

I'm pretty sure you know this, but you can get tax benefits from the student loan interest, too. Originally you could only count it for the first five years post school, but I think that may have been extended recently ... anybody know for sure?

[lbjones]

I agree with rpatty, the two interest rates are too close.  You'd have to find another investment that will at least outdue the inflation rate of around 3.0%.  Stocks and mutual funds or CDs are probably a better option.

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I know, I know. I used a bad example. My point was that if the interest on a debt is sufficiently low, financially it may make sense to use the money in other ways. This topic is getting far removed from what the OP asked.

[hegemony]

I'm pretty sure you know this, but you can get tax benefits from the student loan interest, too. Originally you could only count it for the first five years post school, but I think that may have been extended recently ... anybody know for sure?

<{POST_SNAPBACK}>

There are income CAPS for the student loan interest deduction. I got ZERO interest deduction for 2004 and only about 20% for 2003.

[snowpuppy]

IRS did away with the 5 year limit on how many years you can deduct sl interest but the amount of interest is capped each year. This year it was $2500.

[hegemony]

IRS did away with the 5 year limit on how many years you can deduct sl interest but the amount of interest is capped each year.  This year it was $2500.

<{POST_SNAPBACK}>

and there is NO SL deduction if you make over 130K filing jointly...that was our "problem"

[poemhdr]

Can't help with the SL or Tax things. I'm hoping to get a decent card and do some Balance transfers which would change how I'd handle these (I think so anyway).

 

I liked the idea of snowballing to have some kind of system but I didn't like how some cards were put on the back burner with minimum payments (you know how they can raise your rates on one because of what's going on with another creditor). So I modified it a bit so each card was getting a proportional payment. I actually calculated both snowball and my way out a year and my way worked out to be a little faster. Bear in mind I don't have any awesome low interest cards - rates vary between 14.9 and 19.8

 

Decided what I could pay toward cc debt. (200)

Added up cc balances($2064).

Divided each balance by total cc balance -(420/2064 = .20; 528/2064 = .255)

to get a % of the 200 that would go to that card.

 

*I did have to juggle it a bit to get exactly 100%, like using .22 instead of .24 This way the cards with a higher bal were receiving a slightly higher payment.

 

Then as each balance hit $100(util would be around 15-20%), I paid minimum - so if I usually paid them $40, I'd pay min. 15 and divy up the 25 difference between the others (just adjust the % )

 

Amounts are just examples and they're from awhile back, I really have 4 cards but only illustrated 2. Anyway, the idea is that everyone was getting more than minimum so it looked good to the creditor and I didn't have to worry about them raising interest because of a record of minimum pays to other cc's. Sorry for the length of this, I just know I need to see each step to understand so thought it might be helpful. This is a system that worked for me, though as you've seen here before YMMV.

[Gingerly]

Can't help with the SL or Tax things.  I'm hoping to get a decent card and do some Balance transfers which would change how I'd handle these (I think so anyway).

 

I liked the idea of snowballing to have some kind of system but I didn't like how some cards were put on the back burner with minimum payments (you know how they can raise your rates on one because of what's going on with another creditor). So I modified it a bit so each card was getting a proportional payment. I actually calculated both snowball and my way out a year and my way worked out to be a little faster. Bear in mind I don't have any awesome low interest cards - rates vary between 14.9 and 19.8

 

Decided what I could pay toward cc debt. (200)

Added up cc balances($2064).

Divided each balance by total cc balance -(420/2064 = .20; 528/2064 = .255)

to get a % of the 200 that would go to that card.

 

*I did have to juggle it a bit to get exactly 100%, like using .22 instead of .24  This way the cards with a higher bal were receiving a slightly higher payment.

 

Then as each balance hit $100(util would be around 15-20%), I paid minimum - so if I usually paid them $40, I'd pay min. 15 and divy up the 25 difference between the others (just adjust the % )

 

Amounts are just examples and they're from awhile back, I really have 4 cards but only illustrated 2. Anyway, the idea is that everyone was getting more than minimum so it looked good to the creditor and I didn't have to worry about them raising interest because of a record of minimum pays to other cc's.  Sorry for the length of this, I just know I need to see each step to understand so thought it might be helpful.  This is a system that worked for me, though as you've seen here before YMMV.

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Although I would never voluntarily do as much math as you just did, I totally agree. I'm paying double the minimum on everything then putting the extra cash towards the card whose turn it is to get paid off. I just cannot bring myself to pay only the minimum on a credit card.

[poemhdr]

Gingerly

About that math I hear you...calculators are my best friend. About twice a year I get really, really motivated and/or too much time on my hands and work on yearly plans for my money.

It's not as hard as it reads (though I did have to write it down so I wouldn't forget a week later)

 

I still can't figure out simple interest no matter how many years I've been trying. I agree with you about minimums and only pay min when absolutely necessary - wish I would have figured out they get you nowhere about a decade ago.

[Clarkfan2]

Why not use Dave Ramsey's debt snowball method (Pay lowest to highest amount) since the interest rates are not so far apart? It worked for me. I had to do it for a while until I worked the balances down low enough to get it all on a zero for 9 mths card. Remember that debt is the bigger problem not the rate of interest when getting out of debt. Don't be guilty of majoring on the minors (interest rates in the thread creators case.) Having a few small victories is encouraging and helps to motive oneself.

 

Basically you just do as previously discussed. Arrainge debts smallest to largest, pay minimums on all but the smallest one. The smallest one you throw everything you can at it knocking it out in 3 months...then work your way up the ladder. If I could do it ,you can too!