This is a stupid question...but I really need to know

[SalemMA]

Kind of a carryover from my last thread but I just want an answer on this one question.

 

I have a $20,999 balance on an extremely high interest loan (only about $69 per $504 payment goes to the principle). Because it went from being a fixed rate to a variable rate, the min payment will soon go up to close to $1000 which I can not afford monthly.

 

If I were to suddenly plunk $6500 down on this loan ($6500 would be about the max I could do right now), the balance would then be $14,499.

 

If I am extremely lucky and the payments remain between $504 and $700 I can avoid BK. My credit is decent because I have never missed or been late on any payments. However, my debt to income is too high so a BT is not possible right now.

 

My stupid question is... If I get the balance to $14,499... will I start to see more of my monthly payment going to the principle? Yes or No?

[mk_378]

The lower the balance of a simple interest loan, the less interest is charged each month. The month's interest is approximately the balance multiplied by the APR (as a fraction, not a percent, for example 18% = 0.18) and divided by 12 (since APR is annual, not monthly).

 

Your required payment may or may not decrease because the balance is reduced, depending on the terms of the loan. If it is a line of credit instead of an installment loan, it generally will.

 

It would be good to refinance it to a different bank with a lower APR if at all possible.

[encoder]

There is a school of thought that says that if you did file BK right now it would disrupt your access to credit in the short term but you could repair the damage quickly because you'll have no late payments, no chargeoffs, no collection accounts. Just a few TLs listed as IIB.

 

And you could retain whatever postive TL's you have in the form of CCs and only declare on the loan and potentially others you have out there. And if you don't have any CCs you could hold on to, you could take $4000 of that $6500 and plunk it down on a secured credit card and be well on your way.

 

I'm just saying.... and if there's ever been a climate for BK, it's right now.

 

I am too young and too financially inexperienced to offer my judgment on it. But I see the logic in it.

[PHRoG]

Did you try contacting the higher-ups about the variable APR?

[SalemMA]

Did you try contacting the higher-ups about the variable APR?

 

I did. I was told there was nothing I could do. I was told they are doing this to all Gold Option loan holders because of "current economic climate".

 

I requested a copy of paperwork that I signed showing I agreed that the rates could be changed at any time. They sent me a copy of the BOA terms. Nothing signed by me.

 

I was told over the phone when I signed up for this that it would be a regular installment consolidation loan, with the same fixed rate for the life of the loan. It was shortly before BOA bought MBNA.

 

I looked online and apparently many others had the same thing happen and gotten nowhere with the higher ups there either.

[SalemMA]

The lower the balance of a simple interest loan, the less interest is charged each month. The month's interest is approximately the balance multiplied by the APR (as a fraction, not a percent, for example 18% = 0.18) and divided by 12 (since APR is annual, not monthly).

 

Your required payment may or may not decrease because the balance is reduced, depending on the terms of the loan. If it is a line of credit instead of an installment loan, it generally will.

 

It would be good to refinance it to a different bank with a lower APR if at all possible.

 

 

Thank you.

 

I don't forsee the payment going down per month but right now, I just want to get this particular loan paid off ASAP. Right now when I pay $500 every month and see over $400 going to interest, I feel like it will never be paid off.

[gerray]

I would call and ask again to speak to a supervisor, be open and honest and explain your situation. Tell them if they cannot help you, you will be forced to file BK and you think a CH.7 will be your best option.

 

You'll be surprised in a lot of cases this will get your rate back down to a much more manageable level.

 

You can't be afraid to let them know the financial difficulty you are facing. A lot of times they will offer solutions even if its a short term (they may say that they can only adjust it for 6, 9, 12 months etc.) but at the end of the short term you always have the option of calling them again and going through it again and stating the circumstances still haven't changed and you still cannot afford an increase etc.

[SalemMA]

I would call and ask again to speak to a supervisor, be open and honest and explain your situation. Tell them if they cannot help you, you will be forced to file BK and you think a CH.7 will be your best option.

 

You'll be surprised in a lot of cases this will get your rate back down to a much more manageable level.

 

You can't be afraid to let them know the financial difficulty you are facing. A lot of times they will offer solutions even if its a short term (they may say that they can only adjust it for 6, 9, 12 months etc.) but at the end of the short term you always have the option of calling them again and going through it again and stating the circumstances still haven't changed and you still cannot afford an increase etc.

 

I spoke to some sort of VP. They said, again, there is nothing I can do. I did tell them all this. The standard response was "I'm sorry but there is nothing we can do".

 

I just want to pay this off, hopefully within 10 years and be done with BOA and never do business with them again.

[ClarkeCO]

SalemMA,

 

I think the reason people are talking to you about BK options is with your current situation people feel you will better off in the long run to BK now rather then later. They see it is inevitable.

 

I am sure lots of people who have BK'd wish they had done it sooner rather then later. You have perfect payment history (Based on what you are telling us) now, and will continue to up to the point of BK. It makes recovery quicker and frankly in the current economic "situation" you are far from being alone.

 

I hope you take a look at all of the advice and decide what is best for you. Certainly not an easy situation anyway.

 

Best of luck to you and your boyfriend/fiancé/soon to be husband

[gerray]

Salem:

 

If/when you get past due they will probably sing a different tune - just be aware that they will likely wait until it reports late to the credit bureau to start "negotiating with you".

 

As someone that has filed BK I would recommend not going that route unless it is absolutely a last resort. However, I would file BK before going through a CCCS or debt settlement company (these are some of the biggest scammers around).

 

Good luck and let us know how it turns out for you.

[SalemMA]

I will not do BK unless something else happens it becomes my only option.

 

I work in a field where my credit score is important in my getting a job. If I ever lost my job, having bad credit would make my chances of getting hired almost nil.

[staranyway]

From your most recent billing statement...

 

What is the current interest rate for this loan?

 

How is the current minimum payment calculated?

(what percentage of balance)

[SalemMA]

From your most recent billing statement...

 

What is the current interest rate for this loan?

 

How is the current minimum payment calculated?

(what percentage of balance)

 

Don't have a copy of it on me but I will check when I get home. This info isnt on the online statement... weird.

 

It is calculated based on the prime rate now. I'm not even sure how to find out what the prime rate is.

[staranyway]

I have a $20,999 balance on an extremely high interest loan (only about $69 per $504 payment goes to the principle). Because it went from being a fixed rate to a variable rate, the min payment will soon go up to close to $1000 which I can not afford monthly.

I don't think the interest changing from fixed rate to variable rate

caused the payment increase.

 

Based on the numbers provided, it seems more likely the

percentage used for calculating the minimum payment

changed from 2% to 5%.

[improper_validation]

I'd make your minimum monthly, then a separate payment on the same day so the latter goes all to principal.

 

 

You may also try, after the statement cuts paying 1/2 the minimum and the other half as soon after as possible. This will cut down on the average daily balance.

[SalemMA]

I'd make your minimum monthly, then a separate payment on the same day so the latter goes all to principal.

 

 

You may also try, after the statement cuts paying 1/2 the minimum and the other half as soon after as possible. This will cut down on the average daily balance.

 

So make two payments but on the same day? Can they be a day apart? Would it be better for me to do this for a few months with the $6500 than to put it all down at once?

[SalemMA]

Best of luck to you and your boyfriend/fiancé/soon to be husband

 

Thank you. We will no longer be getting married. I started this thread to get away from this aspect of the other one.

 

This debt has destroyed my life in many ways, not just financial.

[Jen23514]

I'd make your minimum monthly, then a separate payment on the same day so the latter goes all to principal.

 

 

You may also try, after the statement cuts paying 1/2 the minimum and the other half as soon after as possible. This will cut down on the average daily balance.

 

So make two payments but on the same day? Can they be a day apart? Would it be better for me to do this for a few months with the $6500 than to put it all down at once?

 

they could be a day apart if that makes it easier.

 

due to compounding interest, it would be better to put down the $6500 upfront and as soon as possible.

[creditcardnoob]

I don't know if this is recommended, but I'd just let it go to collections and then dispute it. Eventually you'll pay a fraction of the price, have the debt removed from your credit report, and be 100% interest free from that lousy loan. what does everyone else think?

[creditcardnoob]

come to think of it that's exactly what I'd do. I wouldn't drop $6500 a month for stupid interest (I would for a loan with a lot less interest). thats a serious chunk of money for some people and could make someone cross the line from living very well to living very poorly just to pay off high interest loans. sometimes you have to break the rules to survive a little

[Jen23514]

I don't know if this is recommended, but I'd just let it go to collections and then dispute it. Eventually you'll pay a fraction of the price, have the debt removed from your credit report, and be 100% interest free from that lousy loan. what does everyone else think?

 

she has near flawless credit now, that would destroy it.

 

she would be better off declaring BK with no lates/COs on her credit IMO.

[frank22]

Did you try contacting the higher-ups about the variable APR?

 

I did. I was told there was nothing I could do. I was told they are doing this to all Gold Option loan holders because of "current economic climate".

 

I requested a copy of paperwork that I signed showing I agreed that the rates could be changed at any time. They sent me a copy of the BOA terms. Nothing signed by me.

 

I was told over the phone when I signed up for this that it would be a regular installment consolidation loan, with the same fixed rate for the life of the loan. It was shortly before BOA bought MBNA.

 

I looked online and apparently many others had the same thing happen and gotten nowhere with the higher ups there either.

 

I received this offer in the mail and I did see that they can change at least the rate at any time. I thought that was weird because the rate span was just where my current rate was, and they wanted a 3% fee also. I thought I would be paying a 3% fee for something for a rate they could change anytime. They made it look like a installment loan, but it was more like a credit card with none of the benefits. I bet the payment percentage was a term they could change too, I don't recall.

[SalemMA]

I don't know if this is recommended, but I'd just let it go to collections and then dispute it. Eventually you'll pay a fraction of the price, have the debt removed from your credit report, and be 100% interest free from that lousy loan. what does everyone else think?

 

she has near flawless credit now, that would destroy it.

 

she would be better off declaring BK with no lates/COs on her credit IMO.

 

 

This is why I don't want to do this. I've worked hard to keep up the payments. It seems dumb to me to destroy all that now.

 

How exactly does BK work when you aren't late on anything and have income?

[TroyP]

I have a $20,999 balance on an extremely high interest loan (only about $69 per $504 payment goes to the principle). Because it went from being a fixed rate to a variable rate, the min payment will soon go up to close to $1000 which I can not afford monthly.

I don't think the interest changing from fixed rate to variable rate

caused the payment increase.

 

Based on the numbers provided, it seems more likely the

percentage used for calculating the minimum payment

changed from 2% to 5%.

 

This HAS to be it. While there have been recent reports of ratejacks, if the OP is currently paying $69 in principal out of a $504 monthly payment, then her rate has to be around 24 - 25% currently. For her minimum payment to double due only to her interest rate, her rate would be near 50%. I find that difficult to fathom.

 

Now if her minimum payment jumped from say 2.4% to 5%, that would certainly hurt cash flow wise, but at least OP would be paying off the note, rather than spinning her wheels paying $1,000 a month with almost all of it going towards interest. At a 5% minimum with OPs interest rate remaining the same, my estimates indicate if she applied the $6500 she has to her balance, and continued paying a 5% minimum, her payment would be around $725 the first month, of which about $285 would go to principal, and her payment would shrink a bit each month (Month 2 would be around $710, Month 3 $696, etc.).

 

That might be more manageable than just doubling the rate, since you at least get the satisfaction of seeing your debts shrink each month!

[SalemMA]

I have a $20,999 balance on an extremely high interest loan (only about $69 per $504 payment goes to the principle). Because it went from being a fixed rate to a variable rate, the min payment will soon go up to close to $1000 which I can not afford monthly.

I don't think the interest changing from fixed rate to variable rate

caused the payment increase.

 

Based on the numbers provided, it seems more likely the

percentage used for calculating the minimum payment

changed from 2% to 5%.

 

This HAS to be it. While there have been recent reports of ratejacks, if the OP is currently paying $69 in principal out of a $504 monthly payment, then her rate has to be around 24 - 25% currently. For her minimum payment to double due only to her interest rate, her rate would be near 50%. I find that difficult to fathom.

 

Now if her minimum payment jumped from say 2.4% to 5%, that would certainly hurt cash flow wise, but at least OP would be paying off the note, rather than spinning her wheels paying $1,000 a month with almost all of it going towards interest. At a 5% minimum with OPs interest rate remaining the same, my estimates indicate if she applied the $6500 she has to her balance, and continued paying a 5% minimum, her payment would be around $725 the first month, of which about $285 would go to principal, and her payment would shrink a bit each month (Month 2 would be around $710, Month 3 $696, etc.).

 

That might be more manageable than just doubling the rate, since you at least get the satisfaction of seeing your debts shrink each month!

 

 

The notice I got & what they told me on the phone, said they were now calculating based on the prime rate. I don't really know what that means but that is when the rate went up.