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!
is this cheating?
February 19th, 2010 at 04:29 am
February 19th, 2010 at 05:42 am 1266558132
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!
February 19th, 2010 at 05:59 am 1266559199
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.
February 19th, 2010 at 01:20 pm 1266585611
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.
February 19th, 2010 at 03:02 pm 1266591765
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.
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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.
February 19th, 2010 at 03:18 pm 1266592736
February 19th, 2010 at 07:18 pm 1266607122
Jerry
February 19th, 2010 at 07:40 pm 1266608400
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!!
February 20th, 2010 at 05:26 am 1266643581
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.
February 20th, 2010 at 06:14 am 1266646447
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.