How to attack this mess

iVillage Member
Registered: 04-10-2005
How to attack this mess
10
Sun, 04-17-2005 - 10:57am

Hi-


I have so much debt I am not sure how to attack it.


Here are the ugly numbers:


Visa 31528 4.5% min pymt 650


BofA1 12845 0% until Oct 05 then 8.24 min pymt 10


BofA2 6500 5.5% min pymt 140


mbna 15476 0% until Sept 05 then 8.9 min pymt 15


discover 7900 0% for life min pymt 160


So, would the best way be to payoff lowest balance to highest?

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Sun, 04-17-2005 - 11:46am

The answer is honestly whatever feels the most manageable to you.


From a pure, raw numbers way of approaching the problem, one should pay off the card with the highest interest rate first.

All my best,
Danni

iVillage Member
Registered: 04-10-2005
Sun, 04-17-2005 - 12:54pm

Thanks for your reply!


I am going to pick one card and just focus on that, instead of letting the "big picture" overwhelm me!

iVillage Member
Registered: 02-19-2004
Sun, 04-17-2005 - 12:54pm

I think you've done a good job getting some of your debt to low interest cards. As you pay them down, you will be able to continue to do that (you'll get more and more zero interest offers). If you want a boost of paying something off more quickly, focus on the $6,500 card since that is your lowest balance. When you get that one paid, you will have $140+ each month extra to put toward the next target credit card. After the $6,500 is gone, I would personally focus on the highest interest card first. As you pay down the highest interest card, you are going to see a bigger bang for your buck as your total interests costs go down. Of course, this means you need to get the balances on zero interest offers that expire soon to other zero interest cards. But if you can pay off the $6,500 card and keep everything else at zero interest, and focus on the $31k card, you will be in good shape before you know it.




Edited 4/17/2005 12:55 pm ET ET by firstamendment

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iVillage Member
Registered: 08-20-2004
Sun, 04-17-2005 - 4:37pm

They all gave you good advice, and I agree with them.

The fact is, you owe more, much more, on you CCs, than
I do on my house.

I don't know how much your income is, but if it looks like
it will take you more than say, 5 years, to pay this all off,
even with shifting stuff to low interest, you should should
consult a bankrupcy attorney, before these new laws take into effect.

Frankly, if its the choice of being paybcheck to paycheck the next
10, 12 years, or filing BK....you need to consider all your options.

I'm not making legal or financial advice, just saying, examine all your options,
and the timetable.

And stuff comes up....and stuff WILL come up over the next 5, 7, 10 years
that will be major setbacks.

iVillage Member
Registered: 05-19-2004
Tue, 04-19-2005 - 11:32am

The first posts are great, but I have to agree with the last one. My stomach is doing flips thinking of all of that cc debt you have. It is double my current home's mortgage.

You didn't mention your income~ or if you own or rent a home, have a car payment or student loans. Although student loans cannot be dismissed for a bankruptcy- the laws are changing soon and I'd look at my options pretty quick about those cc. As the previous poster said, if your income is low it may take the 10 years to pay these off~ while a bankruptcy may be off your record by then and you could be saving your money that whole time.

I wish you the best whatever you decide! Nicki

iVillage Member
Registered: 03-27-2003
Tue, 04-19-2005 - 9:26pm

First of all, welcome to the board. This is a fabulous group, and these marvelous ladies (and gent or two!) will help you more than you can imagine.

That having been said, I have to respectfully disagree with the advice to look into bankruptcy, unless you are having trouble making your minimum payments. If you are up to date on your credit card payments, and able to make the minimums each month, then it is my opinion you will be in much better shape if you begin paying it off.

First of all, while you may still be paying on your debt in ten years (though probably not, if your income is good and you're diligent about it), as your debt load decreases and you continue to stay current, your credit rating will remain clean and gradually improve, allowing you to keep options open for things like home loans, car loans, and even job applications. If you declare bk, you will be stuck for a good ten years. No new house, no matter what happens in your life, and probably trouble finding a new job if you ever need to, since they often check your credit profile--especially for high-paying jobs, which I imagine you must have in order to have been given access to that kind of credit.

Now, as for paying it all off. Yeah, it's a lot of debt--but you knew that already. To have even had access to that kind of credit, though, I'm assuming your income is high as well. It's all relative. At one time, our debt burden was 125% of our gross annual income. In actual numbers, it was lower than your total debt, but in relation to our annual income, I imagine it was probably equivalent if not higher. We were behind on payments, creditors calling, a charge-off and a collection item on our record.

We have paid it down significantly, bought a new house last year, started a new business this year, and are doing quite well. Our credit ratings are well above average, and it's only been three years. We're still in debt, but we are in control of our finances, have learned A LOT, and I wouldn't trade the experience, the pride, and the management skills I've gained from paying it down for a zero balance and a hefty bank balance.

And, by the way, I owe a lot more on my mortgage than you do on ccs! LOL

As for what I think you *should* do--I think, like an earlier poster said, that you should pay down the $6500 first. That will free up an extra $140 very quickly. Then, you might want to tackle the $7900 balance. Even though those are lower interest rates, they will actually allow you to pay down the larger balances quicker, because you will (of course) be applying those minimum payments to the larger balances when you're ready to tackle them. Although it seems counter-intuitive, this can actually be the mathematically quicker way to do it. Because those smaller balances will so quickly free up large sums of money to add to the "snowball." I'm not sure that explains it right, and I'm also not sure it *is* the mathematically quickest way in your particular case, but there are calculators out there (don't know any addresses--sorry) that will help you figure it out if it matters to you. In any event, the psychological benefit is enormous, so it's my advice regardless.

You will be SOOOO proud of yourself when you get this under control. You'll be the one coming back to this board and saying, "Oh, you think *you* have a lot of debt--imagine starting with what I had to start with!" LOL You'll be an inspiration. :)

Having said all of that, I do believe there is a time and a place for bankruptcy. I just don't think that having a large debt burden is reason enough. It completely wrecks your credit rating, limits your options in so many aspects of life, and it doesn't even completely free you up--you will still have some responsibility, probably lose your house if you have one, almost certainly lose a car if you have two, and it just isn't fun, pretty, or easy. Not to mention, you still have to pay the lawyer. Oh, and there's a strong chance you won't even qualify unless you're already behind on debt payments and so on--but you still have to pay the lawyer for her/his time. Or you might qualify at one level, but still have to make debt payments even after the settlement, ESPECIALLY if you have a high income.

Good luck with whatever you do, and keep coming here. It is an amazing group of folks.

Blessings,

Heather

iVillage Member
Registered: 03-27-2003
Tue, 04-19-2005 - 9:31pm

One other thing--the fact that your debts are still on such low rates means that your credit rating is fabulous, despite the amount you owe. I'm guessing that means that you are not only current, but also your income is very high. Don't mess that up! :) It also means that it really doesn't matter that much which debt you pay off first--none of them is charging you all that much interest. Besides, you will learn so much from paying all that off, and you'll feel so good about yourself.

Blessings,

Heather

iVillage Member
Registered: 11-24-2004
Wed, 04-20-2005 - 1:05pm
I have to agree with the other posters. Tackle that 6500.00 first while sending all other creditors only the minimum payment. Then when that 140.00 is no longer going to BofA, Add that 140.00 to the 160.00 you normally send to Discover. When Discover is paid off, you will now have and extra $300.00 to send to the BofA card with the 12845.00 balance. I got this formula from John Cummata's "Turning debt into wealth program". He is of the same school of thought as Dave Ramsey. I'm doing a program like this now. I send extra money to my car payment and when the car is paid off, I will send the extra 335.00 to my mortgage company. Good LucK!

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iVillage Member
Registered: 02-23-2004
Wed, 04-20-2005 - 1:29pm

You didn't indicate how much money you have to put towards your credit cards each month... but here's the best course of action I've calculated based on the numbers you've provided (assuming you aren't strugging to just make minimums on each and aren't considering bankruptcy):

* Pay all you can on BofA2 ($6500), minimums on rest.
* When BofA2 paid off, pay all you can on Discover ($7900), minimums on rest.
* When Discover paid off, pay all you can on BofA1 ($12845), minimums on rest
* When BofA paid off, pay all you can on MBNA ($15476), minimum on rest
* When MBNA paid off, pay all you can on Visa ($31528) until gone.

Paying off lowest balances first will give you a sense of accomplishment as you work through this debt and any sense of accomplishment with a large amount of debt makes a HUGE difference!

Each time you pay off a card, transfer the amount you were paying to the previous card to the amount you are paying toward the next card, since you're already used to making this payment it will be easier to not count the money in your monthly budget.

The crutial aspect of this is that you need to stop adding money to your credit cards while you're in this repayment plan. You need to start trimming money that is going elsewhere in your budget and focus as much of your discresionary funds to paying down this debt.

Using this scenario and paying only an additional $225/month (above minimum payment requirements) so total towards debt is $1200/month, you will be debt free August 2010. It seems a long way away, but definitely doable and everytime you get some additional money or a raise or anything, put the extra funds towards the debt and it will be paid off much faster.

iVillage Member
Registered: 04-30-2005
Sat, 04-30-2005 - 1:15pm

I think all this is good advice about the way to attack it. I need a lot of advice myself, so I won't pretend to be an expert...but...

...cut 'em all up.

Or put them in the freezer, or whatever people do to stop using credit cards. You don't have to cancel them if you want them for "emergencies", but many of us know that it's too easy to pull out the card for any little thing 'cause it doesn't "feel" like real money.

It may take some getting used to, learning to live on cash, but you can do it.