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is this cheating?

February 19th, 2010 at 04:29 am

I'm doing the Dave Ramsey thing, trying to pay off some credit cards. Let me throw a situation at you...I asked one sister her opinion, but would like my friends here at SA to opine as well.

I owe $408 on Card 1. My student loans are at around $2500. I owe $13,500 on Card 2. (there are more cards, but they don't play into this situation). My debt snow ball is $420 per month, and all extra budgeted money that I don't need for bills go to the snowball, so on March 14, I'll have around $480 to pay off Card 1 and then the rest goes on the student loan. The current interest rate on Card 1 is 11.24%, and the current interest rate on the student loan is 3.125% or some such ridiculously small number. The interest rate on Card 2 is, I think, 16%.

I got an offer to transfer balances to Card 1 at 3.99% for a year, with a 3% balance transfer fee, but the credit limit on that card is $2000 and it has to be done by March 5.

My goal for the year was to pay off the house (done), card 1 (almost done), student loans and the pickup we bought with a loan from DH's grandma ($3000 - 0% loan).

I am doing Dave Ramsey's method because I need a process to follow. I know in my head that attacking highest percentage is the smart math thing to do, but at this point, I need a method that gives me pride every so often before slogging through a year of payments to pay off a card.

I want to do this:

* use our farm line of credit to pay off Card 1 in the next week
* transfer $2000 (with a buffer for interest and fees) from Card 2, lowering that card to $11,500ish.
* pay the farm line of credit on March 14 with the snowball
* keep paying minimums on Card 1 (with the new balance) and Card 2 after the transfer
* concentrate on the student loans this year and the pickup, even though the $2000 on Card 1 would now be the lowest credit card amount.
* Once the goals for this year are done, start over on Dave's plan, starting with Card 1 again, then moving on to Card 2.

This way my goals from the beginning of the year are the same and I effectively lower the interest rate on a card I won't get to until next year. If Bank of Amigo (Card 2) said "we'll lower the interest rate on $2000 of your balance to 6.99% for a year, but keep the rest of it the same" I would jump on that. I think that the minimum payment on Card 2 should go down the same amount that the minimum payment on Card 1 would go up, so the snowball should go up by the original minimum payment on Card 1, right?

But, is that cheating? Is it going to undermine the procedure I am trying to follow? Will not reducing the number of cards I pay each month hurt my psyche? lol about the psyche, but I hope you know what I am talking about.

I know in my head that this is a smart thing to do. But I also know that I am following a plan because I have not been tenacious enough to do it by myself. That is what I am really afraid of...falling off the wagon.

Any advice would help.

Thanks!

9 Responses to “is this cheating?”

  1. debtfreeme Says:

    Have you tried to negotiate a lower rate with the cc company that is at 16%? You can call them and figre out how much the payment will be lowered by taking 2k off the cc. It might mot equal the new pament on the balance transfer to the new card.

    Personally i would stick with the original plan. Why put debt on the farm (even with the plan to pay it off in march) when the future is unknown? I would not put unsecured debt onto something that is secured like the farm.

    Once you pay off the cc1 what is your debt snowball amount each month?

    Why are you focusing on the student loan when the interest is so much less? If you pay off the student loan this year along with the cc1 what is your new debt snowball amount? When is the goal of paying off the student loan completed this year based upon your estimates? what is the difference in intereswt you pay between the cc2 amount and the SL?

    I totally understand the desire and psychological boost to see things completed (cc1 and student loan) but believe with a 13% difference between the SL and the CC2 that it would save quite a bit to pay of cc2 before student loan.

    good luck with your decisions! I feel the pain right now!

  2. cptacek Says:

    When I first started this snowball, Card 1 had a minimum payment of $50, so that would be added to the snowball. It would go up to $470. Student loan is another $50 a month, so after that is done, it will be up to $520.

    Like I said, I know in my head that I need to pay off the high interest cards. BUT I have failed doing that in the past. That is why I am using a system of paying off small balances first, then the big ones.

    When I get CC1 and Student loan and Gma paid off, I will then start on BoA. That will take over a year to pay off. I need some success before a year!

    Student loan should take less than 6 months to pay off. Heck, by then, the pickup should be paid of as well with regular payments. I'll be able to start on the BoA card by the end of the year if things go like they have been going.

  3. claudia Says:

    So if i read this right, what you'll be accomplishing is lowering the interest rate on $2,000 from 16% to 11.2%?

    I would probably try to focus more on paying off the debt, period. I think doing the transfer and using your farm line of credit might give you the false sense that you're accomplishing something when the really important thing is just paying it off. I'm sure there are people here who will disagree with me, but that's just my opinion.

  4. cptacek Says:

    No, I will be lowering the interest rate on $2000 from 16% to 6.99% for a year.

    I am focusing on paying it off. I am paying at least $370 more each month towards debt over the minimum payments, and last month paid over $800 more. I don't know what else would qualify as "focusing on paying off the debt". I'm trying to slog through it using the Dave Ramsey system to free up some cash flow and get a psychological head of steam going.

    Please remember that we are in the midst of expanding a farming operation, so though my husband works his ass off, and we showed a slight profit last year (before depreciation), none of his efforts are going towards these bills. My income is paying for all living expenses, all "normal" (i.e. monthly recurring) bills and contributing to the farm as well.

    If the balance transfer offer would be open for two more weeks, there would be no discussion here. I would pay off CC1, then concentrate on the student loan, transfer the money to CC1 and pay minimums on that until student loan is paid off. The only reason I am thinking of borrowing from the line of credit is because of the two week difference, and I would immediately pay off the line of credit two weeks later.

    ----------

    Er...I forgot about a reimbursement check I received last week until right now. I deposited that last week and immediately sent the payment to CC1, so we aren't talking about $408...we are talking about $265. I need to see if I can squeeze $265 from the food/gas/other account and I won't have to borrow anything.

  5. Ima saver Says:

    I would focus every dime I could find to pay on card 2 with the 16% interest.

  6. Jerry Says:

    I think that the process you choose that offers the best insurance to keep you "on the wagon," as you put it, is the right one. It may differ from person to person, but the main thing is that it leads to progress on getting out of debt. Good luck, whatever you decide!
    Jerry

  7. ceejay74 Says:

    It sounds like you're still unsure of your resolve, so I would make sure you've got proof (to yourself) that you're going to stick with it this time before you do any transferring around of debt.

    I speak from personal experience because I used to do balance transfers all the time, but then I'd end up using the card I'd "paid off" and I'd have even more debt. Soon after I joined this site, I did one more balance transfer to consolidate a few debts. I was nervous because I knew my history of abusing balance transfers, but I felt that I'd turned a corner where I would never consider running up balances again. It worked out, and that consolidated loan was paid off last year.

    So it's a matter of being honest with yourself; are you going to be able to stay disciplined? If so, then do what makes most sense for you even if it involves moving debt around.

    Good luck!!

  8. baselle Says:

    Your farm credit line is for farm expenses and emergencies, correct? It sounds like the "quick" transfer is a bit of a gamble that you will utilize, then pay off the credit before an emergency happens. Only you can run the numbers and figure out whether a gamble is worth it. Uncle Fiscal Murphy (of Murphy's Law) will pay you a visit.

    I did the pay-the-smallest-first cards with a few balance transfers myself to chop away at the high interest debt. There was a definite psychological boost as the first one fell.

    If memory serves, Feb 22 is the date that credit card companies/credit lines must comply with new, tighter regulations - minimum payments, interest rates, etc. I would hold off on doing any fancy moves until I was positive that the cc company was not going to pull a dirty trick on you. That's all you'd need: for the farm credit line to shut down or increase its interest rate because you utilized more credit.

  9. cptacek Says:

    We are only talking $265 taken from the line of credit for two weeks (maybe...if I can't get the gas/food/misc checkbook to help out), until I get paid again. We just renewed it for $25,000. I don't think it is that much of a risk.

    I am rethinking starting to pay on the 16% interest rate card instead of the student loan, though. New goal for the year would be getting that one under $10,000 if I don't do the balance transfer, $8,000 if I do.

    Ok, new scenario. If I am now concentrating on the 16% interest rate card (Card 2), NOW would it make sense to get Card 1 paid off even if I have to take a two week loan from the LOC and do the balance transfer? Then make minimum payments on Card 1 (in this scenario of transferring the money, $2000 @ 6.99%) and the student loan (~ $2500 @ 3.125%), and concentrate all extra money to Card 2 ($11,500 @ 16%)? If I do this, then I will be putting about $750 a month towards Card 2 (minimum payment + snowball - new minimum payment to Card 1).

    I'm no Dave Ramsey disciple, by no means. I just want a system that works. Hell, I just want the balances to disappear, regardless of a system.

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