Author Topic: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start  (Read 16622 times)

rogera

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Hi everyone,
I am new to MMM and this forum was recommended to me to get a handle on a giant CC debt issue.

I bring home about $2800 a month (after mortgage, health insurance, electric (very cheap bill), retirement, and car insurance are taken out). I own my car and it is in good shape and up to date on repairs.

These are other fixed expenses:

$400 child care
$150 medical bill (monthly payment for next 6 months-it's already been talked down and negotiated)
$170 student loan

These are the minimums on the credit cards

$315 Card #1 14.99 interest (balance $15 K)
$156 Card #2  18.99 interest (balance is $5 K)
$200 Card #3  5.99 interest (balance is 6 K) -- this one is through a credit union
$90 Card #4   14.99 interest (Balance is 3500K)
$190 Card #5  0 interest until December 2013 (balance is $2400 K) - then goes to 18.99
$200 Card #6  0 interest until December 2014 (balance is $5100 K) - then goes to 18.99

I still need to buy groceries for two kids and gas. I estimate we spend about 500 total each month on groceries and gas, plus odds and ends for school activities. Some of the grocery bill is money for me to bring lunch to work.

That leaves around $429 left over.  I've been trying to throw this extra at Card 5 since it has a low balance and rate is about to go up but it is slow going. I'm also starting to worry about Christmas.

My two questions are:

 1) I am going to get a yearly bonus of $2000 after taxes at the end of November. My inclination is to put $1800 toward Card #5 (and try to beat the rate hike) and use $200 on Christmas presents and travel -- good idea?

2) which card should I pay off next?

Thanks.

Endersmom

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Once you clear card 5 I would then work on card 2 as it has the highest interest.

Lans Holman

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Yes, attack the debt with the bonus.
Ordinarily, there might be some debate about where to go after that between those who would say to go after the lowest balance so that you can do the Dave Ramsey style snowball, and those who would say to go after the highest interest rate.  In your case those are happily aligned, so you can take your $400/mo., add the $190 you aren't paying on card #5, and go after card #2.

So far that's all the advice you could get anywhere.  But you're here, so we have to go the step further. 
1) It's not necessarily relevant how you built up all this debt, but are you sure your habits have changed to the point where it's not coming back once you pay it down?  If you're not sure about that, you might need to tell us where it all came from.
2) Did any of this spending pay for anything that still has value?  Is there anything you could sell to throw at this debt?
3) Unless you're getting an employer match, you might need to think about suspending your retirement contributions, as long as you're paying 15-18% on your debt.

rogera

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Yes, for #2- there were some past Christmas purchases and clothes for kids that I have been selling at resale shops as we no longer use them

As far as spending issues, about half of the debt was incurred from poor lifestyle choices as a graduate student (too much spending, not enough earning) but the rest was from medical bills related to the birth of both children. I am not charging anything on the cards currently and some of the zero interest rates are due to balance transfers I could get. I'm definitely motivated to get rid of this debt.


EK

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Hi rogera. 

Definitely send your bonus towards your debt!!!!!!!!!

Card #2 is the obvious next target, and then you'll probably want to look towards trying to beat the interest hike on #6.  Just pay them off in highest to lowest interest rate order.  Unless you are someone who really struggles with motivation, in which case you may prefer to pay them off in lowest to highest balance order even though mathematically it makes less sense to do it that way.

More importantly... How did you get into this position?   The hardest and most important thing is to address the causes of the debt so it never happens again. You will find lots of tips for further reducing your expenses and hopefully get inspired to create a better life even while you learn to spend less and less.

EDIT: I see you HAVE addressed the causes of your debt, and I wish you lots of luck going forward.  People have dug themselves out of much deeper holes.  Congrats on the birth of your children. :)
« Last Edit: October 30, 2013, 10:59:15 AM by Evakatharina »

N

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I agree with @Lans

Have you gotten your car insurance as low as you can? I dont know what your retirement contribution is, but can it be altered until your debt emergency is over? is that the least expensive health insurance option you can do right now?

You must eliminate and reduce all expenses you can.
You CANNOT spend extra (using credit cards, loan, etc) any longer

Really examine your belongings and see if you can sell some on ebay or craiglist to help offset debt

Pursue extra income. Do you have a SO who can contribute? Can you do part time or side work? Can your kids earn money? dog walking, sitting, etc anything to help offset stuff you might buy for them?

Can you rent out a room? a basement? a garage?

dadof4

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On the plus side, you have a nice income, and it sounds like you have a good handle on your expenses going forward.
Do you have any way to consolidate your CC debt? You're paying a lot of interest on them, probably around $500 a month on interest alone.

Can you get a home equity loan?

MountainFlower

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Talk to a credit union about consolidating.  We had a lot of credit card debt from building a house.  The housing market crashed as we were trying to finish, so no equity to tap into.  Our credit union consolidated about that much debt into a 7.9% loan.  We had outstanding credit, so that helped.   Even if the medical bills trashed your credit, I'd still go talk to a credit union.  You never know what they might be able to do for you.


dantownehall

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If I were you, I would stop contributing to your retirement and use that money to start paying down your CC debt until that's under control.  From what you've shared, I think the math would work out for this to be your best option.

Also, start eating more rice and beans!

netskyblue

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I'm also starting to worry about Christmas.

If you are going to buy gifts, you really should set a budget and contribute to it all year.  Otherwise, you're in the same situation - you want to buy gifts, have nothing saved up for gifts, and charge them on a card.  It's not a surprise - Christmas comes at the same time every year.  You knew it was coming.  Don't wait for some magic November windfall to buy what you were planning to buy all year.

rogera

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #10 on: October 30, 2013, 12:18:44 PM »
Answers to questions asked:

All cards cut up but two with high balances in case of emergencies (with kids, I just feel like I need to have these). However, they are really tough for me to get to (in a lockbox at work and I haven't been at all tempted to get them or use them).

I don't want to rent out a room--just don't want a stranger living with us with two small children right now. Significant other is living abroad for a year for school (so, not contributing to our expenses but also not making anything to help us -- only getting a small stipend).

For retirement, I'm contributing just enough to get the match and I believe contributions are required (I'll check right now...). Car insurance is really, really cheap since my car is over ten years old. I will see if I can adjust health insurance costs at all...good idea.

I thought about trying to go to another credit union to consolidate the debt but since I just did one of these will that look bad on my credit report? I don't really want to do a home equity loan at the moment (I'm very stressed and worried about this particular option so I'd rather not do that).

Christmas suggestions are good. I will definitely do these. Thanks. For this year, I'm just going to limit spending to the $200 I have planned and when it is gone, that's it. Grandparents have offered to buy nicer gifts for the kids so I can just buy something small for each.

I forgot to say that I am also sticking $50 a month in a savings account (Ramsey's suggestion) mostly because I feel like my luck on my older car won't last forever.

MountainFlower

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #11 on: October 30, 2013, 01:02:56 PM »

I thought about trying to go to another credit union to consolidate the debt but since I just did one of these will that look bad on my credit report? I don't really want to do a home equity loan at the moment (I'm very stressed and worried about this particular option so I'd rather not do that).



From what I understand, credit scores are helped by
1.  Installment loans, which is what you would get, and
2.  Low credit utilization.  If you take a bunch of money off your credit cards, your credit utilization percentage will decrease.  So, if you are currently utilizing 80% of your available credit, and you move a bunch to an installment loan, it will now look like you are only using 50% (or whatever) of your available credit and that looks good.




frugaldrummer

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #12 on: October 30, 2013, 01:13:02 PM »
I would put $1,000 of that bonus into an emergency fund a la Dave Ramsey - otherwise, you'll be turning to the credit cards again next time you need a car repair or have a medical bill or the washing machine breaks.

Then attack the credit cards smallest to largest OR highest interest rate to lowest, depending on your mindset (do you need the emotional reward of paying one off, or are you analytical enough to enjoy paying the total down the fastest route?).

Have a yard sale or sell outgrown kid stuff on ebay to raise extra cash.

?Babysit other people's kids on the weekends for extra cash?

Ask for a raise.

Any other side gigs you can do to raise extra cash? 

dadof4

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #13 on: October 30, 2013, 01:14:27 PM »
I thought about trying to go to another credit union to consolidate the debt but since I just did one of these will that look bad on my credit report? I don't really want to do a home equity loan at the moment (I'm very stressed and worried about this particular option so I'd rather not do that).
If you get a line of credit from your credit union, it will have minimal effect on your credit rating. Just keep your existing credit cards open, and your utilization will go down. If you go do a "debt consolidator" who try to negotiate with your current cards, it will ruin your credit rating for the next few years.

Either way, your credit rating is of secondary concern. Having a good credit rating but paying 18% on $36k is not smart. It's $500 a month you are throwing away. After consolidation, you will have another $300-400 a month to throw at that debt. As long as you're self disciplined enough to actually pay off your debt ASAP, this is the way to go.




gimp

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #14 on: October 30, 2013, 01:34:33 PM »
Unless my math is wrong, looks like $37k in debt, not 36. 15 + 5 + 6 + 3.5 + 2.4 + 5.1 = 37.

Quote
$315 Card #1 14.99 interest (balance $15 K)
$156 Card #2  18.99 interest (balance is $5 K)
$200 Card #3  5.99 interest (balance is 6 K) -- this one is through a credit union
$90 Card #4   14.99 interest (Balance is 3500K)
$190 Card #5  0 interest until December 2013 (balance is $2400 K) - then goes to 18.99
$200 Card #6  0 interest until December 2014 (balance is $5100 K) - then goes to 18.99

I still need to buy groceries for two kids and gas. I estimate we spend about 500 total each month on groceries and gas, plus odds and ends for school activities. Some of the grocery bill is money for me to bring lunch to work.

That leaves around $429 left over.  I've been trying to throw this extra at Card 5 since it has a low balance and rate is about to go up but it is slow going. I'm also starting to worry about Christmas.

In order of importance:

1.

Definitely look into consolidating. I don't think it really matters how "bad" or not that may look on your credit - I think effects will be relatively minimal. Less than the effects of not doing it. If you can get everything into a single 8% or so loan, you'd be doing great. And a home line of credit (second mortgage is the less polite way of saying it) is an excellent strategy as long as you're fairly sure you won't do anything stupid with the "free money", or lose your job tomorrow.

2.

Your card minimum payments are $1151. You spend $500 on other things. The rest is essentially fixed, as you say. Of that $500, how much can be reduced? Grocery, gas, and school things you said. Generally speaking, can you find a way to drive less? And can you find a way to eat cheaper? I'm not suggesting less food, but perhaps you currently buy things you really don't need. Often times a lot can be saved by cutting out soda and most junk food. What do you usually buy? A savings of $100/month here would be great, and $200/month would be even more awesome.

3.

Assuming you can't or won't consolidate. I'll lay out some figures, and then I will show some rough figures if you can consolidate at 8%. But the short version is that it may well take you three, three and a half years, if you don't do anything different.

Beating the interest on #5 sounds like a good idea, but it's not currently making you bleed. #2 is. I suggest paying off #2 first. Especially since the minimum payment is so small compared to the other cards, that most likely means every minimum payment you make on that one is hurting you more than minimum payments elsewhere!

You have double the balance on #2 as on #5, you have 19% interest, and yet you're paying less? That smells bad. Very bad. Annual 19% interest (compounded annually) on $5k is $950, and you're paying double that in minimum payments. Compare that against annual 19% interest on $2400 is $456 and you're paying 5x that in minimum payments.

So I would put all extra money into #2. If you're putting $50 in car savings (fine idea!) that's around $350/month extra into #2. And the $1800 bonus you mentioned. That will bring your payments from now until the end of the year to around $2800 (november payment, december payment, and bonus).

Things get a little hazy from there, so definite update your situation. Also if you get tax refunds, those would probably go into paying off debt.

If I were to follow this to completion, assuming no refunds, and without doing much math...

After the year rolls over, you will have about $2500 at 19% on card 2, and about $2000 on card 5 at the same 19%. If you keep putting the extra $350 into card 2, you're paying 500/month, and will finish it by around June; at this point, you have around $1000 on card 2. You clear that in two months, in August. There's a bit of interest I have hand-waved instead of doing a real calculation, so someone can correct me.

At that point you'd switch to paying the highest current interest, which is 15%. Card 4 has $3500 on it today. Interest currently costs you $500/year and you pay just under $1100 in minimum payments (again, only double the interest). You should be around $3000 on it in August; payments for the last four months of the year would bring that down to around $1300. That's at the end of December 2014. If you have another $2000 bonus, you finish off card #4, and put five hundred into card #6.

At the end of next year, you would have paid for ~14 months at $200/month on card 6, and at 0% interest, your principal would be down to  $2300, and the five hundred would bring that to $1800. Interest starts accumulating january 2015 and you are paying $550/month on that, finishing it in four months. At this point, only card 1 and 3 remain. Card 3 is paid off at $2400/year and accumulates interest at $360/year right now. Roughly speaking, it would have around $3500 in january 2015. At this point, you'll confidently pay it off after card 1 (or possibly during, since card 1 is so big.)

On the other hand, card 1 is going to hurt. It's 15k now, accumulates interest at $2250 a year, and is paid at $3800/year. Significantly less than the others. In january 2015, you'd still have $13200 on it. At $665 a month, it will take you around two years to pay it. (By this point, card 3 would be paid off long ago, just from minimum payments.)

So from a rough estimate, it looks like you'll be into 2017 by the time this is all finished.



Now what happens if you can save $100/month on your current expenses? Add to that perhaps earning $100 a month extra from side work. Also ignore inflation; the good news is that your take-home pay should go up but the credit card APR is fixed. (RIGHT? YES?) I think you can already imagine that $200/month extra could cut an entire year off this repayment. ($2400 extra paid PLUS the reduction of interest from the money paid.)



Now what if you could roll all the debt into a single 8% loan. Of course you'd want to keep your 6% card, and not roll your 0% cards in until they turn into 19% cards, but let's ignore all that and say that you right now rolled that into 8%.

Interest: 8%. Principal: $37K. $3000/year in interest. (How much does it cost to consolidate? I don't actually know.) $1500/month in payments. Another 1800 at the end of november. Looks to me like it will take under two and a half years. You're saving a *ton* of money by consolidating.

Realistically speaking, if you only consolidate cards 1, 2, 4, and 5, that will be:
- 6000 @ 6%
- 25900 @ 8%
- 5100 @ 0% for now

Then you could choose between snowballing (kill the 5100 before it starts yielding interest, or kill the 6000), or paying off the most expensive one first (25900). If you did the latter, you would have 2300 left on card 6 at the end of 2014, which you might either pay off using an annual bonus, or roll into the 8% if possible.

Also psychologically, you'd have to deal with fewer individual bills.

SunshineGirl

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #15 on: October 30, 2013, 01:54:17 PM »
Lots of good ideas for you here.

You didn't mention phone, cable, or internet expenses you have each month. What are they? Often, they are the lowest hanging fruit in terms of saving money.

dadof4

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #16 on: October 30, 2013, 01:59:05 PM »
I forgot to say that I am also sticking $50 a month in a savings account (Ramsey's suggestion) mostly because I feel like my luck on my older car won't last forever.
I'm not quite following the logic here.

Scanrio 1 -  You put $50 a month in a savings account (probably earning less than 1% interest). In a year you have some car troubles that cost $600. You pay them with the $603 in your savings account, leaving you with $3.

Scanrio 2 - You use the $50 to pay off your 18% APR CC debt. When your car breaks down, you pay $600 with your credit card. Your debt to the CC is about $55 lower than scenario 1.

Not a huge deal, but I just don't get it. It sounds like Ramsey is more a financial psychologist than anything else.

rogera

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #17 on: October 30, 2013, 02:10:22 PM »
I love gimp's plan that lays it out year by year...I will definitely follow that in terms of plan for payment (and look for a consolidation loan), and yes, it is 37K (ugh). This is what I was feeling most worried about --which card to pay first and the cards with short term low balance rates.

For phone, cable and internet, I don't pay any of these. Significant other pays the cell phone bill and I am on that plan. No landline. I don't have internet or cable and don't really watch TV (just rent library movies). I use the internet on my phone if I need it outside of work and use the internet at work.

For the $50 savings a month issue, I thought I probably needed the $1000 saved up for the emergency fund, but then I would quit and put that $50 towards credit cards. I have $150 in there now (only been doing it three months).

For groceries, I don't drink soda, but I could cut a few prepackaged things for kids lunches that are more expensive. I pulled out a grocery receipt to see where I could possibly cut. We run pretty lean though.

I did some digging on call the cards and see I have a balance transfer offer on the first card with the huge balance for 18 mos at no interest (I have about 7k left on that card I can use). Should I try to transfer the card with the 18.99 (card 2)  there? After the zero balance period is up, the rate is 14.99. Would that help me out, or get me in more of a mess. The fee is 3% of the amount transferred.

Paul der Krake

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #18 on: October 30, 2013, 02:15:23 PM »
I forgot to say that I am also sticking $50 a month in a savings account (Ramsey's suggestion) mostly because I feel like my luck on my older car won't last forever.
I'm not quite following the logic here.

Scanrio 1 -  You put $50 a month in a savings account (probably earning less than 1% interest). In a year you have some car troubles that cost $600. You pay them with the $603 in your savings account, leaving you with $3.

Scanrio 2 - You use the $50 to pay off your 18% APR CC debt. When your car breaks down, you pay $600 with your credit card. Your debt to the CC is about $55 lower than scenario 1.

Not a huge deal, but I just don't get it. It sounds like Ramsey is more a financial psychologist than anything else.

That's what he is. His main audience is people who are driven by emotions rather than facts and cold calculations. Not everyone agrees with his methods, but he's effective at pulling a lot of folk out of poverty. A lot of folk who often tend to view their lives as an unescapable tragedy and lack willpower.

gimp

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #19 on: October 30, 2013, 02:25:23 PM »
I am glad to hear you appreciated it. I want to emphasize that I didn't use spreadsheets or math, just general hand-waving. You should spreadsheet it out.

Realistically speaking, if you took card #2 ($5k at 19%), paid a 3% fee on it ($150), and got 0% interest on it for 18 months, that would save you $150 in only a few months. As long as there aren't a ton of hidden fees tacked on, I would do it ... IF, and I repeat IF, you can't consolidate in a better way.

You should definitely compile your entire months' worth of receipts. Spreadsheet. Every single line. Even a $0.10 stick of gum. No matter how big or small.

I highly suspect you're spending way more on junk than you thought. Not because you're lazy or inattentive but because it's easy to add a $5 prepackaged item into a $40 shopping cart. I mean, it's food, it's not like you're buying a shredder that takes your money. But... well, thinly sliced prepackaged ham for $3 for 5.5 ounces is about 3x as expensive as a $3 pound of ham you have to cut yourself. As raw calories, assuming identical quality, you wasted $2 on convenience and packaging. Most normal people do this a handful of times on every grocery trip, once or twice a week. I use that example because it sounds very innocuous but it adds up really quickly. I'd say probably 95% of the grocery shopping I see has a lot of fat that can be trimmed, and I suspect most of those people aren't rolling in money.

Most people who do the exercise of compiling a months' worth of expenses are smart enough to immediately highlight 5-10% of it as unnecessary (or downright harmful). It's the realization that compilation is necessary that's hard, not cutting things out!

dadof4

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #20 on: October 30, 2013, 02:31:43 PM »
I did some digging on call the cards and see I have a balance transfer offer on the first card with the huge balance for 18 mos at no interest (I have about 7k left on that card I can use). Should I try to transfer the card with the 18.99 (card 2)  there? After the zero balance period is up, the rate is 14.99. Would that help me out, or get me in more of a mess. The fee is 3% of the amount transferred.
IIRC, when you do a balance transfer and have an existing balance, your monthly payments will go towards the lowest APR first. So your minimum payment will go up to around 470, and all of it would go against the 0% portion until it is paid off - which will take 15 months.  You'll still come out ahead of continuing your earlier course. But consolidation would help you out even more.

If you could get a line of credit @ 8%, use it to first pay off the 15k balance, and THEN take the balance transfer at 0% for 18 months, you would have gained something.




rogera

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #21 on: October 30, 2013, 02:38:21 PM »
Good to know (on the balance transfer) and thanks everyone for helping me out. I just wanted to make sure I have some direction so I can dig myself out.

I just looked over the grocery list and see several other things that are certainly not high need items.

Also, I like the idea of trying to earn more income, which I will look at. I am glad to hear that $37 K isn't impossible to dig out of in five years.

MountainFlower

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #22 on: October 30, 2013, 03:16:26 PM »

IIRC, when you do a balance transfer and have an existing balance, your monthly payments will go towards the lowest APR first. So your minimum payment will go up to around 470, and all of it would go against the 0% portion until it is paid off - which will take 15 months.  You'll still come out ahead of continuing your earlier course. But consolidation would help you out even more.

If you could get a line of credit @ 8%, use it to first pay off the 15k balance, and THEN take the balance transfer at 0% for 18 months, you would have gained something.

Yes, that is true with the minimum payment.  However,  the good news is that now, after the fair credit act or whatever it was called was passed, anything above and beyond your regular payment goes toward the highest interest rate.  Just thought I would add that to the conversation.

gimp

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #23 on: October 30, 2013, 04:09:45 PM »
I was interested and actually made a little model. But I may have made a mistake. We'll see.

If you pay just the minimums, it will take you 73 months. You will pay $60,032. This is assuming the minimums don't change from today (I don't know how they are calculated.)

If you put all extra money (above minimum payments) into paying the smallest balance first, and pay $1500/month to the total sum, it takes 29 months, $43220 total paid.

Optimizing the above results in the same 29 months, $42790 paid.

So deciding which card to pay off first saves you $450. This result is shocking to me and I assume my math is wrong somewhere. It seems like a very low savings. Also your minimum payment will change, and I assumed it wouldn't in this model, so that may account for several hundred more dollars.

Edit: I didn't account for $1800 from the bonus. Here's a text dump of the most favorable case: http://pastebin.com/P4iZra2n.

If this is correct, month 1 is November 2013, and month 29 is April 2016.
« Last Edit: October 30, 2013, 04:18:47 PM by gimp »

Will

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #24 on: October 30, 2013, 10:39:44 PM »
If you have not done so already, you should enter all of your numbers over at:  http://www.whatsthecost.com/snowball.aspx

It can be a real eye-opener, and it can be very motivating to see how all the numbers play out under different scenarios.  It helped me eliminate ALL of my debt in a little over a year.  And it is completely free to use.

RobertBirnie

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #25 on: October 30, 2013, 10:55:12 PM »
Outside of the credit union consolidation idea, also take a look at lending club. They might be able to beat your credit card rates for consolidation.

beltim

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #26 on: October 30, 2013, 11:17:46 PM »
If you do use Lending Club, let us know!  I'm sure there are many people on these boards who would be happy to partially fund your Lending Club loan.

rogera

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #27 on: October 31, 2013, 09:28:17 AM »
Gimp--

Bless you for the model you did. I LOVE being able to see that I can get out in just a few years with some discipline and seeing it month by month helps it make a lot more sense to me. I will also look into Lending Club.

LalsConstant

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #28 on: October 31, 2013, 12:24:01 PM »
rogera,

A lot's already been said but I will add my bit:  You will succeed.

I know because I've BEEN THERE DONE THAT and GOT THE T SHIRT!

I had something like $32,000 in credit card debt and I have been Debt Free for FOUR YEARS!

I know you're going to get this behind you because you are way, way more organized and rational than I was when I started tackling that mountain of debt!

I did not start off too well, it was silly, but I picked the card I hated the most.  The one that harangued me constantly.

I just wanted nothing more to do with that card!

After that bill was paid off FOREVER, my confidence jumped up several echelons and I started to get smart and do what you're doing.

One thing I discovered was there's often much less of a savings by paying off the higher interest rates than people tend to think.

The second card I paid off was actually the lowest interest rate, but it was also the lowest balance.  I did it because I calculated than in six months it would be gone!

Now maybe not everyone's like this, but I needed the boost to have two of the bills gone within a year.  After I had those two down I was able to really bear down and I paid the last two off highest interest rate first.

I guess all I'm saying is while you seem to have your stuff together better than I did (I had a lot of personal problems besides debt when I went into my get out of debt frenzy), my experience was that it wasn't about understanding math.  I understand math and you do too.

Also, I did save $1000.00 as I was paying these down.  I had to tap it once when I had a bad month.  I will attest had I not had the cash buffer to smooth out the bump in the road, it would have been extremely bad for morale.  I might have failed.

The thing is, I had to learn to save for upcoming bills before I could really tackle the issue.  Like your Christmas gifts; what you really need to do is starting December 1, take the amount you think you can responsibly spend next year, divide that by 12, and save that money.

Keep doing it, and by next December 1, you'll have your Christmas right there in cold hard cash.  I do that for everything now, insurance, my eye exam, my car registration, etc.

Seriously when I tell people I pay cash for all my Christmas presents I buy, they look at me like just grew an extra head and it's just so great.

But doing this for all anticipated expenses makes you think more intelligently and smooths out the consumption each month.  You don't get hit with a $250 insurance premium due and have it wreck your whole month any more, but the first year is the hardest.

So I love your bonus idea.  DO IT!  But start saving for next year right away too.

My advice is: 1. Get it done and 2.  Go insane. 

Getting it done:

My opinion is people who hate debt (and I hate debt!) are CRAZY like a fox.  You've got to be a little looney tunes to do something like this.

IMHO there is nothing beneath your dignity when you're trying to change your life against all odds.  If you find a stupid, stupid trick that makes you do something better than what you were doing before, use it!

For me debt elimination was about creating a new kind of behavior I hadn't exhibited before.  Look if you do this and succeed, you will have many thousands of dollars more in the future because you won't ever get yourself in this situation ever again.  Trust me I know.

That's worth the extra $500 or whatever in interest you might pay going out of order on your card repayment.  Whatever silly silly thing gets you going, do it.  Just do it.

I'm not saying the debt snowball is right or wrong I am just saying pay those suckers down so hard their mothers feel it by any means necessary!

Going insane doing it:

It's true my debt situation was my own fault, but I sure had plenty of help getting there. 

Do you realize you're throwing off the shackles of decades of societal conditioning and giving "normal" a big middle finger?  It is glorious and it's absolutely crazy!

Your brain has been conditioned to accept an absurd state of being as normal, and the part of you that tries to think for yourself is just trying to tear through!

The only cure for crazy is more crazy.  You gotta get a little nuts to do this thing.  I went nuts. 

I carried around a little book with all my debts written in it, and I had all sorts of charts and graphs I hand drew in it constantly to track where I was. 

I did jumping jacks every time I sent a payment.

I got MAD at my credit cards.  So angry!

If I bought something and it turned out to cost $10 less than anticipated, I went and right away made a $10 micro payment!

If I saw a quarter on the ground, I picked it up, put it in the bank, and guess what I increased my next payment by a quarter!

Everytime I did something, anything that decreased the debt by even $0.01 I would take out the offending card, prop it up and shoot it the bird.

Sometimes I'd think about how far I'd come and I'd shoot them all the finger!

Whenever one was paid, I cut it up into tiny pieces, lit it on fire and danced on it.  I even taped one to a target and shot it to pieces with a pistol, that was the best.

Collectively these little things actually did very little to the debt and none of them make any real sense.  But what they did do was keep me motivated to make the big planned payments for four years.

Maybe you don't have to be this kind of insane but I sure was and I don't regret any of it.  I only regret getting into such a sorry situation to begin with. 

Incidentally I've never done anything so asinine before or since.  But a little nonsense now and then is cherished by the wisest men.

Now I'm not going to lie, you aren't going to instantly reach nirvana or find yourself financially independent after knocking out debt, but you will find a serenity you didn't know before.  So DO IT!

Sorry this is so long and incoherent but it hits home!

SunshineGirl

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #29 on: October 31, 2013, 12:43:53 PM »
Can I just say - I love the spirit in everyone's replies. Very helpful and can-do. Nice to see!

rogera

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #30 on: October 31, 2013, 02:45:02 PM »
I LOVE the micropayment idea!!!! I received a refund check for a flu shot this morning, deposited it, and then did a payment of $10 on the one card we all talked about focusing on first about 10 minutes ago. What a rush!

rocksinmyhead

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #31 on: October 31, 2013, 03:16:59 PM »
If you have not done so already, you should enter all of your numbers over at:  http://www.whatsthecost.com/snowball.aspx

It can be a real eye-opener, and it can be very motivating to see how all the numbers play out under different scenarios.  It helped me eliminate ALL of my debt in a little over a year.  And it is completely free to use.

I LOVE this tool! It's been super motivational for me too, and really helpful in seeing how increasing monthly payments will affect my 7 different student loans with different interest rates :P

SunshineGirl

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #32 on: November 01, 2013, 10:48:37 AM »
I LOVE the micropayment idea!!!! I received a refund check for a flu shot this morning, deposited it, and then did a payment of $10 on the one card we all talked about focusing on first about 10 minutes ago. What a rush!

I know, right? I do the same thing sometimes, only with investing. I have an account with Sharebuilder, and sometimes as I ponder a buying choice and pass, I'll send what I didn't spend to Sharebuidler instead, even if it's only a few bucks, because it makes the choice so real vs. theoretical.

Numbers Man

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #33 on: November 01, 2013, 12:06:04 PM »
The Credit Union also does Car Title loans. Interest rate probably would be in the 7% zone.

rogera

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- UPDATE -
« Reply #34 on: November 05, 2013, 03:35:58 PM »
Hopefully I made the right choice on my next move:

My professional organization offered a credit card with zero interest for 15 months with the 3% transfer fee. After that period expires, it goes to 11.99%.  I applied today and attempted to move all of the 18.99% debt to this card. We'll see if it works, but I have a decent credit score (lowest of my three scores is 759) and always pay everything on time with a long credit history. I did look into installment/consolidation loans and may still do one of those but the rate at my credit union for these is 11.99. I figured it was better to have the 15 months of zero interest to make more progress.

gimp

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #35 on: November 05, 2013, 03:55:39 PM »
If it works, your new cards would look like this:

Quote
$315 Card #1 14.99 interest (balance $15 K)
$200 Card #2  5.99 interest (balance is 6 K) -- this one is through a credit union
$90 Card #3   14.99 interest (Balance is 3500K)
$xxx Card #4 0 interest until 02/2015 (Balance is $12.5K) then goes to 11.99%

Let's assume the minimum payment is around $400. Just an assumption. Here are the new numbers. Again keep in mind that I may have made a mistake, and I assume minimum payments never change, and I don't count your $1800 bonus. Also I am considering month #1 to be November.

Before you had $350 to put into extra payments. If we assume $400 minimum payment, we have replaced the previous minimums of $156 + $190 + $200 = $546. This is good if you have discipline, because it lets you more flexibly work on the higher interest payments. You now have $146 more per month to put into the higher interest debt. Instead of $350 that's $496. And you're gonna save an extra $4 to make that $500 even, right? Makes numbers nicer.

If all that is correct, and my math isn't wrong, you're at 28 months (1 month =~ $1500!), and you've saved almost $1800-$375 3% transfer fee =~ $1400.

Again, I could be wrong. Here's a pastebin: http://pastebin.com/f2Y6ADnx

Keep in mind that this one may be mentally harder, because you'll be paying off card #1 for such a long time.

Mazzinator

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #36 on: November 05, 2013, 04:44:38 PM »
I'm not trying to kick you when you're down or distract you...but...can i ask about the student loan? Is it on IBR? Interest rate? Amount owed?

Sounds like you have a good grasp on things, so i just want to say, in your situation i am a huge fan of 0% transfers. No sense in paying 19% apr if you don't have to!

Nice work!!!

seattlecyclone

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #37 on: November 05, 2013, 04:52:42 PM »
Yeah, 0% balance transfers are a great tool when used judiciously. Even if you don't have enough cashflow to pay the entire balance within a year, it's much better to pay a 3% fee up front than 15-18% in interest throughout the year. Good luck on getting approved for the new card! If you get approved and still have some room under your credit limit, see if you can get some of the 15% debt moved over there too. Then attack the remaining 15% debt with all you can throw at it. You're making good progress. Keep it up!

rogera

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #38 on: November 19, 2013, 02:48:25 PM »
Just a quick update...

Mazzinator asked about rate on student loan...I was at 3.35% but Sallie Mae offered a .25 reduction if I agreed to automatic debit each month, so I just did that.

I did get the balance transfer for 0 interest until 02/2015 and I also find out that I am getting another $220 as a bonus to throw at my debt. So I feel I am on the right track. Thanks everyone for the help...I'm glad I'm on here.

Bumfluff

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #39 on: November 19, 2013, 06:48:19 PM »
I have been following this thread as I have a similar CC debt and I was not disappointed - loads of great advice. I used the "what's the cost" snowball calculator and found that I could save $1300 over the life of the debt by paying in a particular order, it really does make a difference.

And I have to say: Lalsconstant I LOVE you!! I have been swanning about saying I am going to get Medieval on the asses of my debts but you are the MAN! Love your work.

Good luck Rogera!

CU Tiger

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Re: Reader Case Study - How to Get out of $36,000 in CC Debt -- Where to start
« Reply #40 on: November 20, 2013, 06:00:53 AM »
My thought really aren't about how to tackle the CCs, they are about getting the whole family involved. When I was a kid, my Mom would tell us if we had times that money was tight. She would explain that we had food and clothes and the house, but no money for extras. And if we asked for treats while we were out and about, she would gently remind us that we did not have extra money right now. She took us with her when she made an extra payment on the mortgage principal or paid for something on layaway.
I was not always thrilled, but accepted that we had to watch our pennies. We knew that we'd get one good present for birthday and Christmas, not a dozen. We extra appreciated it when we did get a treat like going out for pizza.
In reading the Dave Ramsey forums I often see that people "don't want the kids to pay for my mistakes," which I think is doing the kids a disservice. Getting the family back in the black can be a family project, and can be full of teaching moments, so the kids can develop good habits and a sense of financial restraint.
Also, while you are in that much CC debt, I would say that Christmas presents are for children only. I do not need any of the things I get as presents, and guess that most other adults feel the same way. Presents are nice but not necessary.