best way?

iVillage Member
Registered: 02-25-2008
best way?
38
Wed, 01-07-2009 - 3:26pm

Hi all,

I am new-ish here and am trying to be debt free by summer 2010. So what we've been doing so far has been paying all our 12 credit cards + retail cards (yes 12! We have paid off 2 3 retail cards) $10 - 15 more than the minimum and then the extra money we have left at the end of the month ($300-500) goes to one of the cards. Initially we paid off a couple of retail cards which had low balances and higher rates to jump start our debt reduction plan and now we are concentrating on the one with the highest interest rate. However, it seems that in case I pay JUST the minimum on all cards and pool the extra money that I was giving each card($140) along with the left over per month ($300-500) and pay the card with the maximum interest, it will help us get debt free sooner by about a month. This information is per the debt calculator at bankrate.com. I was comfortable paying each card a little over the minimum as it gave me the satisfaction of seeing the balance of all cards reduce a little each month - especially since we had nearly maxed out on all our cards.

I have a faint recollection of Suze Orman talking about paying cards $10 more than the minimum and paying the extra per month to the card with the highest interest. So now I am confused as to what I should do since getting debt free sooner is definitely my first priority.

I would really appreciate any suggestions anyone may have or give me any other ideas to tackle our enormous debt.

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iVillage Member
Registered: 01-01-2009
In reply to: el_ttc
Wed, 01-07-2009 - 4:03pm
I was paying the minimum on all my cards except the one with the highest interest rate, but I switched. I set my own minimum payment for each card, and then any extra goes to the highest rate card. It's not a big difference in amount, maybe $100 instead of $94, but somehow it makes me feel better to have all my balances moving down. I owed over $60,000 on credit cards when I started, so my minimum payment was about $1200 a month at first. That didn't leave much room for sending extra, so when my minimum payments started getting lower, I tried to send in the previous minimum. This system is working okay for me so far.






iVillage Member
Registered: 01-06-2009
In reply to: el_ttc
Wed, 01-07-2009 - 4:59pm

El


Here are a few things you should consider when you are drawing up your plan for repayment. First when your statements comes in this month. Take a few minutes and really study the whole statement. Most credit card interest is figured on the average daily balance of the card. Now this balance is dreamed up by the company. Some companies I have found make the balance they are charging you interest on as much as 500.00 more then your true balance.

iVillage Member
Registered: 09-07-2003
In reply to: el_ttc
Wed, 01-07-2009 - 5:28pm

I, personally, am a big fan of focusing on 1 thing at a time.

Teresa
http://www.affordingpickles.blogspot.com

iVillage Member
Registered: 01-23-2007
In reply to: el_ttc
Wed, 01-07-2009 - 8:59pm

According to all the calculators I've seen, you are doing the right thing. I do have a thing about sending minimums, though, so I'm with you there. I also have a thing about "rounding up". If my minimum payment is $16.00 and my total balance is 419.37, I'll pay $19.37 or even $69.37 so I owe a round number, even though I know I should do what you are doing. You are doing exactly what is going to pay off your debts faster.

Can you consolidate cards or get some low interest transfers? We used to have 10 cards and we're now down to 4 but none are near their limits. You can do this. Sounds like you're on your way.

Dee






iVillage Member
Registered: 02-25-2008
In reply to: el_ttc
Thu, 01-08-2009 - 2:38am

Thanks Annette, Mary Ann, Teresa and Dee! Those were such supportive and resourceful posts. And congratulations for making so much progress in debt reduction! You ladies encourage me.
I will talk to dh tomorrow and see what he thinks and we can come up with a plan.

Annette - like you, we used to round it off initially when we had more debt and lesser earnings and then, as you mention, the minimums went down and we stuck to paying the previous amounts due and that helped getting the debt lowered. Then we kind of topped off at $10-15 over the minimum and the rest goes to 1 card. Thanks for sharing.

Mary Ann - Once again you've given really good advice. I had never tried to figure what amount the cards are charging interest on. Again, I had never thought of snowflaking all through the month. To be very honest, I am not really able to snowflake too much because I am on a threadbare budget and I really mean threadbare. And whatever extra is left off each month from grocery etc. has gone to unexpected expenditure like medical bill or prescription refills. But I completely get your point about snowflaking soon after the closing dates. We generally sit on the day dh gets paid and go ahead and pay all the bills online. I think your method of debt payment is really good and needs a lot of discipline - something that I am less confident about. I need to have something written down as a long term plan and know when I will be debt free. According to your plan, if I understood it correctly, I will need to recalculate how much I pay who every month. Your plan also makes a ton of sense for someone who is able to snowflake and do smaller payments throughout the billing cycle. With 12 cards I am less confident I can do as good a job as you have done. Your suggestion about the FICO score is very well taken. After we pay the card that we are presently paying - it has the 2nd highest balance and the highest interest rate, I am seriously thinking of concentrating on getting some cards down to 30% of the limit before again going to cards with the highest interest rates. Right now we have a mastercard with a small credit line which is completely paid off and we use it for all our monthly expenditures. Dh and I both carry that card and use it for grocery, gas, medicines, entertainment and/or eating out. there is a monthly limit that comes from the budget and we charge everything on that card. At the end of the month we pay it off it full and it has worked so far since we have rarely crossed our budget. Thanks so much for all the tips - a lot of food for thought!

Teresa - I totally agree with you - 1 month should not make a huge difference, right? If all goes well, i will be able to get rid of the debt sooner since I have done a "conservative" estimate of our earnings. DH's stipend will see an increase from July and although it will not be much since the hospital will not give the inflation increase this year due to the economy, it will still help. Also, my stipend will be factored in from October and I have just included half of my stipend while doing the calculation. So it should not be too bad. I completely understand when you write about jumping around in joy. Paying off debt is so exhilarating - it is a high and addictive. I just pray things turn out the way we have planned it and we can stick to our plan.

Dee- Thanks for the encouraging words - it feels good to have someone say that I am doing the right thing. I do not talk to anyone IRL about this and hubby is not very finance-savvy and so I have started doing this all alone. Unfortunately, we have multiple cards but the ones will the highest limits are the ones which have highest interest and so consolidating would not be a great idea. I work on an excel sheet which has all my cards listed and that way I keep things pretty organized.

Once again, thanks ladies. I am hear to learn and if you and others have more tips for me - or want to share how they do their payments, I will be so glad.

Best,
El

iVillage Member
Registered: 01-06-2009
In reply to: el_ttc
Thu, 01-08-2009 - 3:49am

Thanks for your note to me. Some that are new really don't bother and it is nice to meet a lady that has class.


One last thing we do the charging for everything through the month on one card because we are on disability and it only comes in once a month. Then when the bill comes in we pay it off. We have two cards that pays dividends on our purchases one is Citi Dividend and the other is USBANK Dividend. The Citi pays more and that is the one that we charge food and also very important Raymond's refills That card and here is a little secret as long as you buy something at a drug store the company doesn't know if it is T paper or pills gives us 2% of the purchase a

iVillage Member
Registered: 02-01-2008
In reply to: el_ttc
Thu, 01-08-2009 - 9:01am

Hi El,

With 12 cards, you should consider the Dave Ramsey plan of paying off the cards in order of lowest balance first. Minimum payment to all cards and really attack the lowest balance card with all your snowflaking power. When that card is paid off, close the account, and then add the money you were paying on that card to the card with the next lowest balance, and so on. It took me months to realize that Dave Ramsey's method was right, for MY situation at least. http://www.daveramsey.com/etc/cms/index.cfm?intContentID=4055

I think you may be overwhelmed by the number of accounts that you have.

Mary Jo








iVillage Member
Registered: 10-01-2008
In reply to: el_ttc
Thu, 01-08-2009 - 10:17am

You have made me feel soooooo much better.

Norma


"Patience is the best remedy for every trouble"- Plautus


iVillage Member
Registered: 01-06-2009
In reply to: el_ttc
Thu, 01-08-2009 - 10:43am

It is very bad advice to give someone to close accounts once they have been paid off.

iVillage Member
Registered: 02-25-2008
In reply to: el_ttc
Thu, 01-08-2009 - 11:46am

Hi Mary Jo,

Thank you for your input - I really appreciate it. However, I am a little reluctant to work with the Dave Ramsey plan. Till recently (2 months back) I was completely ignorant of how to pay off debt systematically -the different methods and the different financial gurus. So when we started on our journey to be debt free we targeted the low balance retail cards that we had and cleared off a total of 5 low balance cards - 4 retail and 1 American Express card. But although it has been a good moral boost, I am more concerned about my higher interest cards - which have higher balances too. Those are the ones keeping me up at night. At this point I do not need motivation that comes with paying off smaller balance cards since the result is more tangible and this is what Dave Ramsey propagates. Paying off debt and a plan to be debt free by 18 months is motivation enough. As I mentioned in one of my previous posts - I feel so good paying even if the result is less tangible than the Dave Ramsey method. However, I completely believe in his idea of having an e-fund and I have set up a goal of 1200$ and have saved over $850 there.

I am also not at all comfortable canceling credit cards since, as Mary Ann mentions, it will damage my FICO score. I am taking this whole debt reduction journey as a painful learning experience. Both dh and I are still working towards our careers and with the Grace of God we hope to be financially doing well in a few years but this experience will be a big learning experience of what not to do in the future and teach us financial responsibility. Also, I understand that canceling credit cards or cutting them up will be useful for those who have more of a difficulty resisting temptation. I carry my credit cards with me and have not charged anything in over a year. They are for emergency and I like having that peace of mind. Also as far as the number of accounts go, I have a very detailed excel worksheet that I use to keep track of our credit cards. It really helps. I would say that I am more overwhelmed by the amount of debt than the number of cards - I think if I had 2 cards with the same amount of debt that I have, I would be just as perturbed. Although I am not encouraging it in any way, I think that my smaller cards are a boon to some extent. Since our interest on cards with higher credit limits are higher, I would have been worse off paying 27% on a balance of 15,000 (fictitious) than the 4500 that I currently have and then a bunch of cards with 7-12 % interest. But then this may be my naive assumption and I may be missing something crucial.
Once again, thank you for your advice.
Best,
El

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