Test Your Debt Reduction Skill on THIS Mess

Here's the layout:

16,500 @ 10.4%

14,500 @ 10.2%

6,700 @3.9%

4,900 @9.9%

58,000 @10% (school loan)

2,500 @0% (till April, then BLAM 24% +back interest)

800 @0% (till Feb, then BAM 22%)

300 @22%

 

Sigh.  This is my life.

Anyway...a few questions and points:

1) I've got 6K coming my way in January (barring divine intervention) that I plan on knocking out the lowest of all of them to get them taken care of before the explode in a few months.  The excess 2.5K, I'll put towards the highest interest rate (right?)



2) I've got a tempting offer in the mail for a 0% APR on balance transfers until October 2008.  The balance transfer cost is $100 max, but then jumps to 13.9%.  Is it a good idea to “juggle” card offers like this from one year to the next?  If I get a $5,000 card from this place and transfer 5K from the 16K loan, I’d save approx. $450+ over the course of a year in finance charges…but is it a good idea?  Anyone do this on a regular basis? Does it harm credit if they see that you have a track record of doing this?

3) That fkcing 58K monster is molesting us.  We’re throwing $580 a month away and getting nowhere.  We’ve been told if we double the payment, it will ONLY take us 10 years to get it paid off.  Well, THAT’S great.  Meanwhile, that other $580 can be going towards more reasonable lower targets (like the 6K card…another $600 a month would have it done in six months or so!).  Suggestions?

My opinion is you're always best off in the long run, paying off the item with the highest interest rates, regardless of how large the balance is on it.  Here is what I would do.

Step one:

Put everything extra you can towards $300, $800 and $2,500, in that order.

Step two:

Paying 10% on the student loan is quite high.  Assuming you have decent credit history you should be able to get that down between 5-7%.

Step three:

You didn't mention what the 16,500, 14,500, and 4,900 were for.  You may be able to refinance those as well.  If you can get 0% for 12-15 months on a credit card cash advance, that may be a good option as well to get a jump start on the payments.  It'll allow you to put more towards principal and pay them down much faster.  However I'd budget out in advance how much you'll be able to pay off before that 12-15 months ends and not take out a cash advance for any more than that.  Otherwise, you'll get stuck with 13.9% (or higher) on it.

I'd leave that $6,700 at 3.9% be.  You're not going to beat that.  I'd apply that $6k in January to whatever is the highest rate item after refinancing (if you decide to).  

I wouldn't recommend continually juggling the credit cards, but I would consider doing it one more time.  You'll save more than $450 if you take that time to get a jump on paying down the principal.

So, here's a little more information and a few more questions.

My wife's student loan is at 7.85%. My wife corrected me, and it's already been refinanced.

The 16,500, 14,500 and 4,900 are all three Citibank (Diamond, Preferred, etc).  Not sure how they can be refinanced at such high balances already, and we've already called to get the rates down from what they were before.  Citibank was surprisingly amenable, which Chase (who we no longer work with), crushed us after one late payment.  I'm not exactly certain what you think we should do with this.  A "credit card cash advance"?  As far as I was concerned, I always thought that they were dirty awful monstrosities and should be avoided at all cost (usually due to high APRs).  I can't imagine getting a 12 month cash advance at 0%.  All my cards right now are at least at 22-24% cash advance rates.

The lower ones are $300 Victoria's Secret Card, an $800 Sears Card, and a $2500 Best Buy card (no, it's for the washer and dryer set).  Those will be first to go.

You really think we should be paying double on the student loan?  It just is more of a morale boost to be knocking down other cards, as opposed to the deep dark hole that her student loan is. 

Ok, great.  7.85% is much more reasonable on the student loan, although I think you may be able to go lower still depending on your credit.  It's worth looking into.  My wife's student loan was at 5.5% for example.

You are right, the cash "cash advance" rates on credit cards generally run around 22-24%+ and usually should be avoided at all costs.  The only exception is some will allow you to write cash advance checks when you first open the card and get the intro apr.  Basically just another means of offering a balance transfer.  Fortunately, you can just do a normal balance transfer since these are credit card debts anyways.  

10% is a pretty good rate on those cards, but if your credit is good, you can do better. For example the Capital One Platinum Prestige card offers 7.9%.  Alternatively you can switch to a card like Bank of America Rewards American Express Card which offers 9.9% with 12 months at 0%. Citibank  offers the Citi Diamond Preferred Card which has 9.49% with 12 months at 0%, but I'm not sure if you can do a balance transfer to a card from the same bank.

As far as paying double on your student loan...  At 7.85% it's not the one at the highest interest rate, so no I'd pay down the others first.  If you get the other rates down to where your student loan is the highest rate, then technically yes it would be the best bet financially to pay that off first regardless of how long it's going to take.  However I understand the morale issue and you may opt to take on some others first in order to keep yourself encouraged.  Also keep in mind the interest on that student loan is probably take deductable when figuring if it's truely your highest rate loan.

Thank you for all of your help.  I'll start redirecting funds towards the necessary cards. 

Jeremy has pretty much said it all - but one thing I learned about my own debts is that banks calculate interest daily on the balance owing.

I get paid weekly - not monthly - so I divided the monthly payment due on each card by four and took that weekly payment into the bank each time I got paid.

I also rounded up each payment to the nearest $5 (example: if payment was $22.37, then pay $25 etc)

An online calculator showed me that not only was I paying WAY more than just the couple dollars rounded up, but I was reducing the amount of interest they could add on to each bill at the end of the month.

Try it - it's worth a shot

Raven