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.

iVillage Member
Registered: 09-07-2003
In reply to: el_ttc
Thu, 01-08-2009 - 12:43pm

I think one thing it is always important to remember is that FICO scores are not all that cut and dry.


Yes, closing an account may make a small hit.


Closing an account that effects the overall length of your credit history would make a bigger hit.


Then again, having too much available credit can lower your score...so keeping cards open might result in a lower score than closing some newer cards to keep your open credit down.


Then again, having too high of a ratio of debt to available credit will also lower your score.

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

iVillage Member
Registered: 03-26-2003
In reply to: el_ttc
Thu, 01-08-2009 - 2:31pm

You can take this for what it's worth, but my dh and I paid off over $45K in 15 months by focusing on the card with the lowest balance and paying the minimums on all the rest. We paid no attention to the interest rates as we were only interested in results. The key to the whole thing is focus and intensity. We cut a lot out of our budget in order to get it done and now we're slowly adding things back in because we can.

I disagree with some on this board as far as closing credit card accounts. Dh and I had a bunch and we closed them all. His credit score is now in the high 700s, mine is right around 700. Besides, we don't use credit cards anyway so closing them wasn't a big deal. As for credit scores, I really don't give a fig about my credit score and neither does dh.

Everyone is different though and we all have different goals.

I personally don't plan on using credit again, but if I do need to borrow for something, we have a great relationship with our bank and our credit union. We are also socking away as much cash as we can right now while our incomes are higher and we don't have any payments. We're driving older model vehicles (2 of our vehicles are 2002s and dh's work truck is a 1994) that are all paid for. We plan to pay cash for our vehicles in the future.

It's an amazing feeling to have control over your income and not have to send payments off to the credit card companies. I have lived most of my life a financial mess and I would much rather be in the place I am now, than where I was before sending big checks off to everyone else because I needed that instant gratification that credit cards could give me. In my eyes, credit cards are nothing but trouble. I know I know I know, some of you say they're great tools with the reward points and the cash back features and all. No thanks. I would much rather do things the old fashioned way. Live below my means, buy only what I can afford with cash, and save, save, save.

Good luck!

Sue
Reformed creditaholic and Dave Ramsey fan!




Edited 1/8/2009 2:33 pm ET by srmagoo
Photobucket
iVillage Member
Registered: 01-23-2007
In reply to: el_ttc
Thu, 01-08-2009 - 3:42pm

El:

You could try a debt calculator to see how the Dave Ramsey method stacks up to what you are already doing, just for the fun of it. I'm positive you'll find that what you are doing now is the best method. I just read about the method you are using and they referred to it as a "debt avalanche" compared to the "debt snowball".

You're doing fine. Are you're numbers going on the 2009 chart?

Take care,
Dee






iVillage Member
Registered: 02-25-2008
In reply to: el_ttc
Thu, 01-08-2009 - 6:53pm

Hi Teresa,

That was a really important post. Yes FICO scores are not cut and dried at all. My reason to keep the card accounts open is to maintain as much of a favorable ratio I can between my debt and available credit line. Also I do not plan to cancel the oldest ones at all. My ideal situation in the future, when we have salaries vs. stipends which we have today and no debt, is we have credit cards with higher credit limits and then we can cancel cards with lower limits and the ones which are newer in comparison. I do not plan to carry balances in my cards then but would like to have them for trip - we have family all over the world who we visit and credit cards are so convenient when we go to a different country.
Once again, thanks for very the informative post.

El

iVillage Member
Registered: 03-15-2005
In reply to: el_ttc
Thu, 01-08-2009 - 7:25pm

I definitely agree with leaving your cards open, but not used...especially while you are paying off your debt.

Jennifer


 


iVillage Member
Registered: 02-01-2008
In reply to: el_ttc
Thu, 01-08-2009 - 9:25pm
But Mary Ann, she has TWELVE credit cards! I think the sheer number of cards contributes a lot to her anxiety. And once a card is paid off, strong willpower is needed to not use it to run up another balance.
Mary Jo







iVillage Member
Registered: 02-25-2008
In reply to: el_ttc
Thu, 01-08-2009 - 11:27pm

Hi Mary Ann,

It is evident that you have done an excellent job of reducing your debt. The amount of prudence and thought that has gone in is really inspiring. Unfortunately we do not have any cards paying us dividends. We do have some that give us rewards and we have used them wisely. But since we are not using any of those cards now - as they have balances, we are not really getting any "rewards". We do use a mastercard to pay for everything and then pay off at the end of the month and this keeps things under control but does not pay any dividends. For the first time today I snowflaked $15 since our cable/ phone/internet bill was less than what I had allocated to it....yiiipppeeee!

We try to tell ourselves that most of our debt came from necessary expenditure such as DH's exams - there were 4 @ about $1000 each. My grad school application and his training application also ran to about 5000$. Along with this was out of state tuition for me for a semester - our health insurance was sky high too. And because our combined stipends during that time was about $1200 per month - we had to charge them and we are still paying for that years later- and with a 28% APR it does add up. We were so not aware of how to pay back and we paid them back haphazardly which also hurt. Among all the residents of dh's program, we are the worst off financially and so we avoid all social events which require us to spend any money. I can also not do the infertility treatment that I need to do since money is so tight. The good thing is I am very motivated and credit cards do not tempt me to spend. So with the support that I am finding here and a good plan, we should be able to do what it takes.

Best,
El

iVillage Member
Registered: 02-25-2008
In reply to: el_ttc
Thu, 01-08-2009 - 11:52pm

Hi Sue,

Congratulations on the great achievement!
I completely agree with you that one size does not fit all as far as debt repayment goes. But it is definitely to everyone's advantage when we share what worked for us and pay out the options for people to choose. I am so glad I found this board.

For us getting rid of credit cards is not really the best option. Plus we will have at least a couple of moves before we settle down somewhere - moves that will possibly take us across the country. So essentially we will try to do whatever we can to improve our FICO score and getting rid of debt is the most important thing we can do -plus making sure that our balance to credit limit ratio becomes less than 30%. Another reason why we are trying to get rid of debt is because we drive an older car (2000) with close to 145,000 miles on it and I drive 50 miles to school every day. We do not plan to buy a car anytime in the near future but God forbid, if we need to get one, I want to be in a position to buy one. We will not banish credit cards completely from our lives since it will be very inconvenient for certain things that we do/ need to do but we will make sure that we are able to pay back the whole amount at the end of the month.

Best,
El

iVillage Member
Registered: 01-06-2009
In reply to: el_ttc
Fri, 01-09-2009 - 12:01am

Quill


I truly believe that EL is a very smart and educated lady. She has just got into a mess trying to make herself and her husband a better life.

iVillage Member
Registered: 02-25-2008
In reply to: el_ttc
Fri, 01-09-2009 - 12:03am

Hi Dee,

Thanks for the encouraging words. is there a debt calculator that I can find which will help me calculate the dave ramsey method? The ones I found were all with the highest interest first. Where they ask me for my minimum payment, I enter minimum plus the 10 to 15$ that I pay. So this extra that I am paying goes to chip off the balance a little and so at the end of the day I should be able to pay back quicker than the 18 months that it gives me.

It is possibly a little too late at night for me (was watching the BCS championship game) and my brain has stopped working, but please forgive me for asking what you meant by "Are you're numbers going on the 2009 chart?" Did you mean the numbers from my ticker? Sorry about this dumb moment.

Best,
El




Edited 1/9/2009 12:22 am ET by el_ttc