Author Topic: Which credit card to put summer bonus toward?  (Read 1710 times)

rogera

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Which credit card to put summer bonus toward?
« on: July 03, 2014, 02:45:27 PM »
Hi,
In a previous thread, the MMM community helped me decide which credit card to pay down with the $1000 a month I have to put toward credit card debt (previous thread helped me cut expenses to find that $1000 so I won't recap whole financial picture here).

I have 5 cards left to pay since I've been on my MMM plan for a total debt of $33,600k (down from $38k and 6 cards from the past few months) -- so far so good.

This is what's left, and I've been paying the cards Dave Ramsey style - so the $1500 is getting paid off first (and before the interest rate jumps).

14K at 14.99%

7,500K at 0% for 13 months (13 months as of today, then goes to 12.9%)

5,200 k at 0% for 12 months (12 as of today, then goes to 14.9%)

4,500 k at 8.99% (this card with a credit union if it matters)

3600 k at 14.99%

1500 k at 0% for 4 more months, then goes to 21.99%

Here is my question:
I get an unexpected  summer bonus, split into two payments after taxes. The first payment is $4700 (after tax) on July 30 and the second is $1800 on August 15 after tax.

My plan is to do this:

1) pay the $3600 card off in full on July 30 (and it will be less than $3600 after I pay the minimum payment of $87), and put the remaining $1100 (from the $4700) toward the $1500 card (the other $400 will come from the regular snowball from the $1000 monthly payment toward all credit cards paid out on July 15th). So, both of the low balance cards will be paid off by July 30.

2) Next, I want to use the last $1800 paid out on August 15th to do two things: fund my $1000 emergency fund (that Dave Ramsey says to do first, but I've been ignoring him) and to pay $800 toward my kid's music lessons for the upcoming school year (these are $981 for the year, and I do get a 10% break for paying in full which makes the bill $882.90 - I could find the other $83 to finish that off.

Is this a good use of this "extra" money? Or should I be doing this another way? I want to make sure I have a clear plan to use the money wisely BEFORE I get it. Thanks!



nereo

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Re: Which credit card to put summer bonus toward?
« Reply #1 on: July 03, 2014, 03:05:37 PM »
Your plan sounds good.  Just make sure you have enough to pay off that 1500 loan off by the time it jumps to 21.99%

You are doing better.  Keep it up!

warfreak2

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Re: Which credit card to put summer bonus toward?
« Reply #2 on: July 03, 2014, 03:25:34 PM »
This is what's left, and I've been paying the cards Dave Ramsey style
I assume this means, the lowest balances first?

Unless you have cashflow problems (and if you have a spare $1000/month, it doesn't sound like it), you should pay off the highest interest cards first. Here's the mathematically optimal way:

July: Pay the usual $1000, plus the $4700 bonus, towards the 14.99% loans. (This will kill the smaller one off and make a dent in the bigger one).
August: Pay the usual $1000, plus the $1500 bonus, towards that 14.99% loan.
September: You just have $1000. Pay $500 towards the 0%/21.99% loan, and $500 towards the 14.99% loan.
October: Pay off the remaining $1000 on the 0%/21.99% loan, this will be just before it starts collecting interest.

If the dates don't line up, move the $500 and $1000 payments on the 0%/21.99% loan back by a month.

From there on, put all money towards whatever loan has the highest interest rate, where the remaining 0% periods do not count. That 14.9% loan is still 14.9%, even if it's not collecting interest yet; you want to minimise the time during which you'll have to pay 14.9% on it, so start paying it as soon as the 14.99% loans are paid.