RoadToRiches
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Post by RoadToRiches on Mar 7, 2011 14:01:33 GMT -5
Some of you might know that March 15th is my debt payoff adventure start day.
With that said, I have my first card designated to fall the victim of this plan. GE Money Bank at 24% with 2600 balance on it.
I have scheduled payment of $1700 on March 15th on this card.
On March 15th, I will also have $1100 in my ING savings account (EF)
I was thinking about pulling $600 out of the savings and paying $2300 on the card. That would leave me with $500 in my EF and only $300 to pay next month on GE Card to get the balance to 0.
or....
Pay $1700 as scheduled on March 15th, don't touch my EF and pay $900 as scheduled next month on April 15th.
I think I would potentially save maybe 50 bucks on interest by paying $2300??? I am not sure how to calculate that to be honest.
What do you guys suggest?
The time will not shorten, but I would save a little bit in interest payments. I already have 200 bucks going to ING account per month (100 bucks per pay) so my EF would rebuild again to 1000 bucks in 2.5 months.
Thoughts?
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Plain Old Petunia
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Post by Plain Old Petunia on Mar 7, 2011 14:06:45 GMT -5
The interest on $600 for one month at 24% is $12. ($600 x (1/12) x .24)
I suggest you leave your $1100 EF alone and redirect the $200 per month EF contribution into your debt payoff plan.
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RoadToRiches
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Post by RoadToRiches on Mar 7, 2011 14:16:43 GMT -5
hhmmm so I would only save 12 bucks then. Oh well, I guess I will just pay the 1700. I thought it was calculated differently. DOH! I know what 24% of 600 is lol I feel so dumb now hahaha. I do plan to move 200 per month into debt payoff On March 30th I will be 1100 bucks in there, so I guess I will just leave it there. I am just trying to find a way to get rid of that card already. I hate it!
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Plain Old Petunia
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Post by Plain Old Petunia on Mar 7, 2011 14:24:25 GMT -5
The interest probably accrues daily, so the exact amount may vary a few cents either way, but $12 is close. You are on the verge of eliminating that card, you must be very excited! I have been in consumer debt hell. I married it and struggled under the weight for years. The worst was a loan at 27% interest. Paying that off was a happy, happy day for me.
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RoadToRiches
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Post by RoadToRiches on Mar 7, 2011 14:33:44 GMT -5
Yeah, I have about 16k to go, but I have a plan in place. I can't wait to get it all paid off!
I just keep looking at my spreadsheet and trying to find the ways to pay off that GE card lol.. it's first one on the list to go. I was thinking that I could be fine with $500 in EF in exchange to have only #300 left to pay on GE card next month. But it's same thing really. I have 2 months on this card.
I also been living with credit card debt. I can't wait to get out of it and live debt free.
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Plain Old Petunia
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Post by Plain Old Petunia on Mar 7, 2011 16:11:05 GMT -5
Do you have a good credit rating? If so, have you considered doing balance transfers to reduce the interest you will pay in the meantime? Are your other rates more reasonable?
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RoadToRiches
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Post by RoadToRiches on Mar 7, 2011 16:14:32 GMT -5
Nah, my credit sucks because my balances are high lol Yeah, other cards are pretty low rate. It's ok, this one is only one with some crazy 24%. I will have it done in couple months. I plugged in all my stuff in here: cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp and it gave me the fastest way possible to pay everything off.
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Pants
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Post by Pants on Mar 7, 2011 16:24:38 GMT -5
indebt Over on WIR they were laughing at me because in the span of about 48 hours I went from saying how glad I was to have money in savings to how much I wanted to pull the money out and put it towards a cc to how I needed to save it in savings... So, while I totally understand the itch to pay it down, the truth is that since you own your home (if I remember) you need an EF too--otherwise $ just go right back on the card. You will do great on your plan, don't succumb to the "too much too fast --> total burnout"!
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phil5185
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Post by phil5185 on Mar 7, 2011 16:27:31 GMT -5
I would pay the whole $2600. That leaves $200 in the EF for a month, but you have open cc's if you actually have an emergency. Save the $18 - it's not much but it's free money.
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wodehouse
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Post by wodehouse on Mar 7, 2011 16:30:36 GMT -5
Good luck to you. The fastest way (and the cheapest way) to pay off your debts are one and the same. But it's not the warm and fuzzy "snowball method" put out by some people. It's cold hard arithmetic. Step "A": take the money you have to pay off your debts and add up the minimum payment due on each, the leftover money goes to the account with the highest interest rate. If you have enough to pay that one off totally, then start paying off the account with the next-highest interest rate. Next month: Repeat Step "A" all over again.
edit: hmmm, "Step B", don't add any more debt for awhile.
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phil5185
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Post by phil5185 on Mar 7, 2011 16:36:02 GMT -5
Yeah, other cards are pretty low rate. and it gave me the fastest way possible to pay everything off. How low are the rates on the other cards? And why do you want to pay them off fastest way possible? (I ask because a goodly portion of my wealth came from retaining debt, not prepaying it.)
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RoadToRiches
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Post by RoadToRiches on Mar 7, 2011 18:01:07 GMT -5
Yeah maybe I should leave my EF alone. I dunno, I still have one week to think about this lol..
Phil, I won't be able to "use" this GE Money card for emergency because it's a store card.
Other cards are 8%-14% but they are smaller limits. (1000 bucks)
Why do I want to pay them off fastest way possible? Well:
1. By using what I call "CNN calculator", it gives me amount to pay on each card every month in order how to pay them to pay them off the fastest. Basically, highest APR card first. There are couple exceptions that it gave me to pay off lower APR card but that's because the balance on it is lot higher than the "next" higher APR card. If that makes sense.
2. I want to be debt free quick, so I can start maxing out my 401k at work, open up Roth IRA, have money in savings so I live like a "normal" and responsible human being.
I know what you are saying by "retaining" debt. But this is very far away from my plan. My plan, simple as it comes
1. Pay off credit card debt as quickly as possible. No gimmics. Just pay that s**t off! 2. Save money 3. Capitalize on investments while I am in position to do so.
That's it...nothing to it really.
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DVM gone riding
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Post by DVM gone riding on Mar 7, 2011 19:12:14 GMT -5
don't worry Phil doesn't consider anything over 6% "low" I think you have a great plan stick with it on WIRR we see the people that give themselves wiggle room do the best consistently so don't foget to budget a little for fun that way you don't get frusturated and backslide. Its easy to be excited the first month or two and it helps having someone to talk to, I love that you have a debt buddy, but when you have to do it day in and day out for several years it can get hard. I am glad you figured it out before that was you.
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phil5185
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Post by phil5185 on Mar 7, 2011 19:28:57 GMT -5
don't worry Phil doesn't consider anything over 6% "low"
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RoadToRiches
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Post by RoadToRiches on Mar 7, 2011 20:10:34 GMT -5
don't worry Phil doesn't consider anything over 6% "low" I think you have a great plan stick with it on WIRR we see the people that give themselves wiggle room do the best consistently so don't foget to budget a little for fun that way you don't get frusturated and backslide. Its easy to be excited the first month or two and it helps having someone to talk to, I love that you have a debt buddy, but when you have to do it day in and day out for several years it can get hard. I am glad you figured it out before that was you. Oh yeah, I have little fun money allocated from every paycheck. I have envelopes for gas, groceries, household and fun. This works for me. If I don't spend "fun" money, it goes towards next paycheck. I have it setup so I am comfortable. For example, groceries.. I have not too much, not too little. I don't want this to be total pain and feel like I am in hell suffering. It's just some budgeting, being smart and sticking to the plan. My biggest mistake before was when I didn't have a budget, I would have extra money left and I would have mentality of "Uh oh, I got 500 bucks extra, what can I buy!?!?!" Even though I was making minimum payments on everything. Putting myself on envelope system really helped me. I know exactly how much I have and what goes where. So, I think I might stick with it. I mean, if I pull that $600 from my EF, it would only make my payment lower next month. I have it in my spreadsheet as 1700 this month and 900 next month. If I stick with that, I will keep my EF in tact. I COULD take out 900 out of EF and just pay the whole thing off and then rebuild my EF.. but with my luck, something will happen lol
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blackcard
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Post by blackcard on Mar 7, 2011 22:03:08 GMT -5
I like the plan that Petunia suggested. You might also try a bank consolidation loan? EF, please don't touch it. It seems as soon as you do, something very expensive and unexpected expense comes up. That old Murphy.
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motherto2
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Post by motherto2 on Mar 7, 2011 22:33:26 GMT -5
I think you have a great plan, and I would stick with it. You need that EF amount in the bank because it gives you peace of mind. If you pulled most of it out to pay off the cc a month earlier, you'd keep yourself awake at night worrying about the fact that you just pulled most of it out to move your payment up one month! And then if you have to pull out a cc because your water heater breaks 1 1/2 weeks before you can replace the EF, you will feel like you've failed because your EF wasn't funded to keep yourself from using the cc again. vicious cycle. stick to your plan and you'll be feeling the celebration the following month. Good luck!
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RoadToRiches
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Post by RoadToRiches on Mar 8, 2011 7:41:31 GMT -5
You guys are right.
Thanks! I will stick with the plan and leave my EF alone.
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haapai
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Post by haapai on Mar 8, 2011 9:22:00 GMT -5
I'm usually the one advocating zotzing credit card debt by taking the savings balance down very low. However, - The debt that you are planning on zotzing is not an open, general use credit card. If an emergency strikes in the next couple of months, you don't have the option of putting the emergency on the card.
- I suspect that paying off the store card will have a relatively small effect on your cash flow. The traditional open an account/get 10% off today cards tend to have very low minimum payments. (This may not be the case here, since it appears that this retailer is going through another financial service outfit but it certainly was true of department store cards.)
- You appear to be relatively new to this debt payoff thing and your budget might just be missing a few things. (My first debt payoff budget did not include automobile insurance or birth control, so I'm not one to throw stones. My point is if your budget is off by a hundred or so a month, it's a heck of a blow to the ego and it can take you a long time to rebuild your emergency fund or otherwise recover from the blow.)
- You haven't told us how many debts you have but judging by the total that you mentioned and the reference to $1000 limits, you probably have quite a few. The more debts you have, the harder it is to recover from a cash flow crisis caused by an unanticipated expense or emergency. That is, if you have a $1000 automobile repair and put it on an open credit card, all you really have to adjust to is the disappointment and the slightly increased credit card premium. On the other hand, if the only way to get a $1000 automobile repair paid for is to charge $1000 on four different cards (or more likely raid checking for cash, charge some, and landing up charging gas and groceries for weeks), it is easy to lose track of what the new charges will be and you may stay in the habit of charging necessities to stay afloat.
- "Pick a target debt and throw everything at it while paying minimums on the rest", is very easy to say but surprisingly difficult to put into practice. Even with just one credit card debt and three installment debts whose payments never changed, I had a devil of a time figuring out when to pay each one of them and how much I could afford to throw at the credit card. If you are paid weekly or biweekly, those due dates are going to rearrange themselves onto different paychecks constantly and it takes a while to get the hang of looking several weeks into the future. Even with just four debts, I quickly grabbed a paper calendar and started writing on it. When that didn't serve my purpose, I wrote a fairly elaborate excel spreadsheet simulating my expected cash inflows and outflows. I was pretty shocked by how often that spreadsheet flat out told me that I could not send the cash in checking toward my target debt because it would be needed for other things.
I think you've done something very smart by calculating the interest cost of keeping extra money in checking. (I'm a big fan of putting numbers preceded by dollar $igns on decisions.) However, calculating numbers is only the first step. The next steps involve figuring out how much risk and disappointment may come with attempting to save on interest. It's a heck of a lot trickier than calculating interest, but there's quite a bit to be gained by attempting to figure it out. The choice is entirely up to you. If you have a plan B that you are comfortable with and understand the risk, it may be worth it. It's also not a decision that you have to make in a week. There's nothing wrong with sending in what you had originally planned to send, thinking things over for another week, and then sending more money if you think it is worth it. I really have no idea what your finances look like. Your budget and many relevant details of your debt are a complete mystery to me and I have no real idea what kind of risks are involved. I also have no idea how long this debt repayment process will take. FWIW, the lack of an envelope in which to send payment need not be a factor in your decision making once you master online bill payment. I felt much more in control of my finances once I figured out how to do this stuff electronically. It's really nice to have the option of sending a butt-covering payment immediately and having a few days to think about whether you can afford to send more. I won't sugar-coat the PITA-factor involved in getting started, but knowing instead of hoping that the payment went through on time can be a real stress reducer.
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RoadToRiches
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Post by RoadToRiches on Mar 8, 2011 10:40:02 GMT -5
Ok I will try to answer to all of the points. 1. I was paying minimum payments for long time now. Getting me nowhere. 2. My budget includes car repairs, oil changes, possible clothes buying...everything I could think of. I been following my budget since January 1st. It's really fine tuned and working perfectly. Adding envelope system to it and eliminating use of Debt Card really makes things super easy. Cash on hand. 3. By paying off that store card, it will free up $80 a month. That is the minimum payment on that account. 4. Most of my cards are closed. For example, Citi gave me 0% with automatic payment, but I had to cancel the card. They actually called me and said they would offer me card back again if I want to. So, taking out bill consolidation loan or transfering balances is out. My credit is not that good, and my cards are either maxed out or closed. 5. My plan is catered to "one card at a time" payoff, with snow ball concentrating on the highest APR card first, which will get me out of debt the fastest way. (December of this year, instead of April-May of 2012) If I was paying "lowest balance card first' - ala Dave Ramsey. As this approach might be good for those who need motivation, I do not need any more motivation. I feel I am beyond that. Math is what I look at. Whatever is cheaper. 6. All my bills are getting paid online. I don't even know how much stamps are. Don't remember when I sent a letter last time lol... 7. I get paid every 15th and every last day of the month. All my credit card bills, my car insurance and everything else with exception of mortgage and HOA is due on 20th of every month. I switched it like that long time ago. This way, I know this paycheck goes towards this and that paycheck goes towards that. When I get paid, I logon to my bank, select which bills are to be paid, put the amounts in and click Pay Bills. One time, every bill. I will leave my EF alone. Like I said, with my luck, as soon as I would take that money out of EF and pay that store card, something will happen and I will be in deep doo-doo. It's not like I treat that $1000 EF as "extra money". If I take it out, I will have to rebuild it again. I was just thinking that I could take out $600 and leave $500 for EF just to get the balance little lower on the card. I just want to get that thing out of my life and out of my spreadsheet!!! So I guess the question I have to ask myself is: Do I feel safe with $500 in EF for couple months?
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DVM gone riding
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Post by DVM gone riding on Mar 8, 2011 16:22:52 GMT -5
since you don't actually have CC to back up emer (see the other thread were we talked about this) then it is even more important that you have your EF and have it available to use. Stick with the plan it is a good plan from the sounds of things, it will just take time
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haapai
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Post by haapai on Mar 9, 2011 7:57:08 GMT -5
Sometimes it's good to be wrong. Pretty much every assumption that I made about your finances and level of organization was off and I'm definitely cool with that.
You seem to be extremely well set-up for a satisfying round of debt reduction.
I suggest that if you are inclined to build a line graph of your progress, use negative numbers for the debt and build a line graph that points upward. I found a graph that points upward toward the zero/freedom axis far more inspiring than a graph of debt melting away.
I spent a lot of time looking for acceleration/curvature in the line as interest costs decreased. If you are paid semi-monthly, there's a very good chance that the curve will become apparent in fairly short order.
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RoadToRiches
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Post by RoadToRiches on Mar 9, 2011 8:54:26 GMT -5
Thanks all for your input. Haapai, yeah, I don't really have any card that I could use as EF. My ING Savings IS my EF lol.. if that's gone, then I am floating around without any safe net. As for a graph, I have a little thing in my excel spreadsheet. Basically, I have all my bills written down with monthly payments as scheduled for payoff. So for March 15th, I have $1700 scheduled as payment to GE Card, and so on. I then highlighted all those payments in yellow for each card. It's cool to see the whole pyramid just crumble at the end and more and more empty payment cells appear. I also have a second sheet setup where I do not have ANY credit card payments. WOW, what a nice thing to see! I switch to it sometimes just to get a glimpse of what it will be like I really can't wait, I am so excited about the thought of being able to save tons of money, have that 6-12 months EF setup, feel safe in case I lose my job and just in general ,be smart with my money and live like an adult. This month, on 15th will be the very first time EVER that I made huge credit card payment. This is the start of my adventure.
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sapphire12
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Post by sapphire12 on Mar 9, 2011 9:43:44 GMT -5
Sounds like you have a great plan. Good luck with your debt payoff!
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