Credit Card Pay Off System Question...

[HockeyRef]

hi all...

 

Man, am I glad I've come back to these boards; got so much going already...

 

My question: I want to use a "system" such as whatis on dinkytown.com and they suggest using your highest INTEREST cards as a starting point for a pay off/roll down system...and I've also seen start with the lowest BALANCE as a way to get going so that you see some "success" in paying down debt...

 

Can anyone here with the experience of using such "systems" give some advice?

 

Appreciate it!

 

HockeyRef

[SassyinAz]

Moving this to the Money Management forum.

 

Sassy

[Gingerly]

It just depends on the person. While it saves you more money to start with the card that has the highest interest rate, if that balance is large it takes a long time to see results. So that's why some people choose the lowest balance card to payoff first, so they can see fast results and stay motivated.

 

I have found that either way it really works out the same...I just total up my total balance owed on all cards and am motivated by that number continuing to decrease.

 

Maybe you could post the amounts owed and correspondinng APR and we can tell you what order we would pay them off.

[HockeyRef]

Thanks Sassy for putting this post in the right place!

 

Here are the balances:

 

Providian 2500 Interst: 19% (ouch)

Capital One: 1591 Interst 14.9

Capital One: 948.00 Interst: 15.9

 

DH has a whopping Providan card: 4400.00 Intest: 18%

 

have applied for some other cards to see if I can get a balance

transfer, also, wondered if those "select checks" of cap 1 are worth it to "beat them at their own game" since theya re offering them at 2.9 percent...use it to pay off a balance of one of their cards...but feel leery about that.

 

Anyway...any input on the above, is sure helpful!

 

Hockey Ref

 

ps

also got approved for a home equity loan at 9% to pay off these debts but unsure too if I want to go this route just yet...nothing like having a debt around for the next 15 years when I know I can clean this up quicker...

[HockeyRef]

PS...I know I can come up with at least 250 to 300.00 to add on top of the minimums...if that helps any!

[Gingerly]

Thanks Sassy for putting this post in the right place!

 

Here are the balances:

 

Providian 2500  Interst: 19% (ouch)

Capital One:  1591  Interst 14.9

Capital One:  948.00  Interst: 15.9

 

OK, BTs would be good.  Can you post what the credit limits are on these cards?  We can come up with a strategy to maximize your scores in order to get BTs.

 

DH has a whopping Providan card:  4400.00 Intest: 18%

 

have applied for some other cards to see if I can get a balance

transfer, also, wondered if those "select checks" of cap 1 are worth it to "beat them at their own game" since theya re offering them at 2.9 percent...use it to pay off a balance of one of their cards...but feel leery about that.  I don't think Cap 1 will allow you to BT one of their balances to another one of their cards (most banks won't).

Anyway...any input on the above, is sure helpful!

 

Hockey Ref

 

ps

also got approved for a home equity loan at 9% to pay off these debts but unsure too if I want to go this route just yet...nothing like having a debt around for the next 15 years when I know I can clean this up quicker...

<{POST_SNAPBACK}>

 

I'd hate to see you trade unsecured debt for secured by your home. Let's see if we can come up with something better first. One more thing...do you know your credit scores?

[Gingerly]

Basically, here's what I'm getting at...

 

Normally, when paying off debt, it's better to get rid of high interest debt and not worry about credit scores.

 

But in you case, you're paying a little higher than normal interest rates all around. So what I think you should do is get all cards below 50% of their limits first, which will maximize your scores. This puts you in a better position to get approved for cards that will give you a nice BT rate. And, it puts you in a better position to get CLIs from your existing cards, which will help your utilization and scores even more.

 

Then, I would start the order in which to pay them all down.

[hegemony]

laddering based on size of debt will costs you money

 

you should ladder based on APR

 

UNLESS you are trying to manipulate utilization for FICO purposes.

[yucca]

I found this thread a while back when looking for the answers to a question similar to yours.

 

LINK

 

 

I have not been able to try this method yet because we are fixing to close on a new house and cannot open any new accounts right now.

[momto2greatkids]

Since you can pay an extra $300/mo towards the cards I'd pay it all towards the card with the $948 balance first. It doesn't have the highest interest rate but if you can have it paid off in 3 months so why not just do it, one less payment to make and you'll see "success" in only 3 months. Than you can call them up and see what kind of bt deal they can offer. Since it'll be paid off they may give you a deal to get you to put a balance back on that card. Than work on paying down the highest rate. And call every few months and ask for lower rates.

 

Just keep in mind if you're going to bt or use the crap one 2.9% checks, they will apply your payment to the balance with the lowest rate first. So only bt to cards that have a 0 balance.

[HockeyRef]

Thanks everyone for the great input...as per the crap 1 2.9 rate, I'd write the check to myself THEN take that money and put it towards one of their cards...thus paying it down and the card I would use for that does have a 0 balance...

 

Re: my credit scores: 649 is my FICO, although my Providian FICO says "968". Just had a new CA jump on that was an old CA that must've sold out to them, I had had that CA deleted and lo and behold, like Poltergiest, "it's back" with a nother company so I'm doing the DV letter right now...sigh.

 

 

Re: the credit limits: on the Providian with the 2500 balance, the limit is 5000, the Cap 1 limits are 2500 and 1500. Hubby just got a "raise" on his Providian (unbeknowst to us) to 7500. Thanks Providian! Higher amounts aren't good for the Fico, are they? Just makes us look like we have more debt...

 

Anything I can do to manipulate this debt/raise my FICO would be just awesome. I long for a 9% card...with no fees! The good ole days

 

Hockey Ref

[HockeyRef]

Sorry, made a mistake on the Cap I limits: they are 2000...and 2500. So, using one of the select checks would be foolish since the card isn't at zero, so, I'd be paying down that balance first, then,t he card principal. Kind of like robbing Peter to pay Paul, and, I'd rather NOT pay Cap I any more than they deserve as they never, ever give me lowered interest rates despite my decent record with them...ok, so I was late twice last year on one other card with them, they promptly jacked my rate to 26% even tho I was only one day late both times...so, at least I had the 800 bucks to pay that stupid card OFF...I should sock drawer that card, correct?

 

Hockey Ref

[CheapDB]

Thanks Sassy for putting this post in the right place!

 

Here are the balances:

 

Providian 2500  Interst: 19% (ouch)

Capital One:  1591  Interst 14.9

Capital One:  948.00  Interst: 15.9

 

DH has a whopping Providan card:  4400.00 Intest: 18%

 

have applied for some other cards to see if I can get a balance

transfer, also, wondered if those "select checks" of cap 1 are worth it to "beat them at their own game" since theya re offering them at 2.9 percent...use it to pay off a balance of one of their cards...but feel leery about that.

 

Anyway...any input on the above, is sure helpful!

 

Hockey Ref

 

ps

also got approved for a home equity loan at 9% to pay off these debts but unsure too if I want to go this route just yet...nothing like having a debt around for the next 15 years when I know I can clean this up quicker...

<{POST_SNAPBACK}>

 

First, make sure Cap1 doesn't charge a "Cash Advance or Balance Transfer" fee for using the BT checks. The charge could offset whatever savings you're trying to pull.

 

I personally think using the Home Equity Loan is a excellent idea. Just because the loan is spread out over 15 years doesn't mean you can't pay it off sooner. The catch is that you must not use or at least rake up the credit card balances again once they are paid off, otherwise you'll be in a worse scenario you are in now.

 

Keep in mind the not only is the home equity loan a cheaper rate than what you could probably get in credit card offers in the near future, all of the interest is tax deductable as well. Your just giving money away through credit card interest payments.

Edited February 13, 2005 by CheapDB

[mrhope]

NEVER used secured money (heloc) to pay off unsecured debt (credit cards)

[CheapDB]

NEVER used secured money (heloc) to pay off unsecured debt (credit cards)

<{POST_SNAPBACK}>

 

I guess you shouldn't if you don't think you can or will pay off the debt. The real solution is to pay off debts while paying the least amount of interest AND setting goals/plans to so that you never have to worry about whether the debt is "secured" or "unsecured". If this is possible, a HELOC or Home Equity Loan is a very good resource.

Edited February 14, 2005 by CheapDB

[lbjones]

NEVER used secured money (heloc) to pay off unsecured debt (credit cards)

<{POST_SNAPBACK}>

 

NEVER is a black and white position. Everyone's situation is different, and I'm sure there are times when using secured money makes sense.

 

The RISK of using secured money to pay unsecured debt, if you default on your payment your house is much more vulnerable. If I were having even the least bit of trouble making payments, I would NOT use my house to pay off unsecured debts.

 

On the other hand, I MIGHT consider using a heloc to pay unsecured debt if I had plenty of money to pay more than the minimums every month, my budget wasn't strapped, I had two months of living expenses stashed away just in case, and I had the personal discipline not to use any credit card until the heloc was paid in full.

 

To the OP - paying off a card in full feels pretty good even if it's not the smartest financially. Just my personal preference.

 

-LB

[idtheftvictim]

hi all...

 

Man, am I glad I've come back to these boards; got so much going already...

 

My question:  I want to use a "system" such as whatis on dinkytown.com and they suggest using your highest INTEREST cards as a starting point for a pay off/roll down system...and I've also seen start with the lowest BALANCE as a way to get going so that you see some "success" in paying down debt...

 

Can anyone here with the experience of using such "systems" give some advice?

 

Appreciate it!

 

HockeyRef 

<{POST_SNAPBACK}>

 

Since most of your cards are at or about the same APR's...you should start with your lawest balance first, then pay minimums on the rest until you have the first 1 paid off.

 

Ok, say you have an extra $300 in your budget a month to pay off bills(credti cards). You would then pay the minimums on the others and send the minimum PLUS the $300 to the CC you are working on....once that one is paid off, you take the $300 that you had as "extra" add the minimum of what you WERE paying on your first card, lets say $50...now you have $350 "extra" a month to send towards bills, so then you start sending your next smallest cc then $350...PLUS your minimum...lets say $50 is the minimum. So you are sending your 2nd CC $400 a month...once you have that card knocked out, you start sending the 3rd CC the $400 PLUS minimum payment....lets say $450....then you have that last card knocked out in NO TIME.....

 

Does that make any sence? Ohhh, and don't use your CC"s until they are payed off...and even then, just a little tank of gas or something to keep them active...

[VibrantEcho]

I'm no math whiz, which is why I let MS Money's debt reduction calculator do all the work for me, but one thing Money does is first allocates your funds to the account that is costing you the most in interest charges - not necessarily the highest rate, but the combination of rate and balance.

 

Fiona

[rpatty]

It definitely might be worth looking into a new account with a good introductory rate for the balance transfer, assuming you can get it. Not only would it save you interest, but it lowers the minimums, thus letting you put more money towards the balance. About this time last year I pulled a large chunk ($10k) from a 12% card to a 0% for six months, and it made a huge difference. Just be careful if you go this route--a lot of cards will have a disclaimer along the lines of "If you don't qualify for the best rate, we'll give you a crappy rate instead and transfer the balance anyway." Not sure if you can completely avoid that risk, but just be aware of it.

 

As for the lowest balance vs. highest interest, it's always a tough debate. I like going for the lowest balance because I hate the hassle of dealing with multiple cards, and the sooner I can make one disappear completely, the happier I am. Not only can you forget about it completely, but then the minimum from that card is yours to use on the other cards or free if you have a lean month or an emergency.

 

There isn't a compelling difference in the interest rates between your cards in this case, either--so high interest first won't make that much difference in the final financial cost. But honestly, neither option is going to be "wrong". Whatever makes you feel best about the process or helps you keep working at it is what you should pick.

[hegemony]

As for the lowest balance vs. highest interest, it's always a tough debate. I like going for the lowest balance because I hate the hassle of dealing with multiple cards, and the sooner I can make one disappear completely, the happier I am.

 

<{POST_SNAPBACK}>

getting rid of the "hassle" will cost you in interest...

 

with your logic I should pay extra on my 1.9% 10K balance car loan before I pay extra on my 5.2% 70K balance student loan! That would cost me big time...

[rpatty]

hegemony,

 

You're absolutely correct in following the logic of my recommendation. In your shoes, I would indeed choose to pay off the car first before paying extra on the student loan.

 

Like I said, my priority isn't to shave every single penny out of the system, it's to get rid of debts. Not just for the hassle (the part that you quoted), but also so that I'm completely free from that payment, leaving me with more room and flexibility in my budget. To me, at least, that extra flexibility is the key point--it's worth far more than the extra dollars in interest cost me.

 

Keep in mind that if, when you finish the car, you then allocate the car payment to the student loan, you'll be able to blow through the student loan faster than you would if you were currently paying on the car. Not to mention you're free and clear on the car, which always feels nice.

 

Your preferences may vary, of course.

[hegemony]

rpatty, how about this hypothetical:

 

10K balance auto loan at 2.9% and a 14K credit card balance at 10.5%

 

would you still pay the car first?

 

I realize this is a matter of personal comfort, but saving money in my opinion is more important than the hassle of paying multiple accounts.

[lbjones]

I have to jump in. No you would not pay a car loan at 1.9% before paying your student loans. 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.

 

I agree with the hassle factor only in cases where there is a large variance between your card balances. Like if you had one card with $300 and another card with $3000. By all means, pay off the $300 first so you can focus on the bigger debt. But when you start dealing with much larger balances, you have to plan long term. That kind of reduction is not overnight, and it no longer makes financial sense to focus on the "smallest".

 

In the age of electronic bill pay and money management tools, the hassle of making payments is so much less than it used to be.

 

-LB

[rpatty]

10K balance auto loan at 2.9% and a 14K credit card balance at 10.5%

 

That one, I'd take the credit cards. The balances are pretty close, and the rates are significantly different, and either one is going to take about the same amount of time to pay off.

 

As a counterpoint:

Say you've got three 1k credit cards at 2.9% and a 70k student loan at 5%.

 

Would you realistically pay the minimums on those three credit cards for several years while you work on the loan, just because it's a higher interest? To me, diverting 3k from the student loan just isn't going to make much of a difference to the interest, but having to track three credit cards for several years would be a big ol' pain in the neck.

 

But that's just my take. Like you said, it's mostly a matter of personal preference and comfort. More than anything I was trying to demonstrate to the OP why one *might* choose balance over interest when deciding what to target, to let them make the decision that worked best for them. Like I said earlier, I don't believe that either choice is inherently wrong, but I know with a great certainty which one makes me happier and keeps me more diligent. If the opposite works for you, by all means run with it.

[rpatty]

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.

<{POST_SNAPBACK}>

 

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.