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SmartCookie
Posts: 2,010
Registered: ‎07-01-2007
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Re: Need advice on paying down debt



honeybrook1 wrote:
SmartCookie, how did you get your old AMEX account added back in?  I had a closed, positive AMEX  TL on my credit report from 1997 that TU deleted by accident.  They will not put it back on, and I was nervous to call AMEX because I don't want them to just delete the account all together.  I would also like them to report this on my EQ.  Is there a # or an addy that you can share?  I would appreciate greatly anything you can tell me.  Thank you.:smileyhappy:


Mine was re-reported once I paid them an old balance as part of their OASIS program.  I am still having a problem waiting for it to appear on EX but with the holidays and all I have not had the time or inclination to decide how I want to handle it. 
 
Close positive TLs delete as early as 10 years, so you unfortunately can expect that to follow anywhere else it is reporting.
 
I would call their general CS number and see what they can tell you.  If you don't still have any other AMEX cards, ask them what would happen with the dates if you were to apply for a new one.
EQ 787 EX 781 TU 737 11/17/07 *** I am not an attorney. If I was, I might not clip coupons. If you want legal advice, consult an attorney. If you want my personal opinion, feel free to consider my posts***
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cheddar
Posts: 6,794
Registered: ‎09-29-2007
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Re: Need advice on paying down debt

It always costs you the least amount of money to pay down the highest rate first.  This is not to say there isn't a psychological benefit from paying off smaller balances first.  But from a purely financial standpoint, the rate is all that matters, not the size of the balance.
 
Again, from a purely financial standpoint, the point is to determine which balance will save you the most per dollar paid.  That will always be the balance with the highest APR.
 
Yes, the interest will be higher in dollars on a $2100 balance @ 10.99% than it will be on a $250 balance @ 12%.  But if you have $250 to pay, applying it to the 12% balance will always save you more money than applying it to the 10.99% balance.
 
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TU 744 / EX 710 / EQ 694 (Starting to slip. :smileysurprised: )
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Brammy
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Re: Need advice on paying down debt

[ Edited ]


cheddar wrote:
It always costs you the least amount of money to pay down the highest rate first.  This is not to say there isn't a psychological benefit from paying off smaller balances first.  But from a purely financial standpoint, the rate is all that matters, not the size of the balance.
 
Again, from a purely financial standpoint, the point is to determine which balance will save you the most per dollar paid.  That will always be the balance with the highest APR.
 
Yes, the interest will be higher in dollars on a $2100 balance @ 10.99% than it will be on a $250 balance @ 12%.  But if you have $250 to pay, applying it to the 12% balance will always save you more money than applying it to the 10.99% balance.
 


 
Now I can agree to disagree on this one. But then I am not talking about managing minimum payments either.  Ok the 2100 is costing you 19.23/mo.  The  250 is costing you 2.50 in HARD money per month.  If I had a lump sum (and it would need to be more than the 250.00) on the higher interest rates. I would definitely apply to the larger balance to brign the hard money going out the door in line.  For me the bottom line is how much in X amount of dollars it is costing me, not how much the bank is making.
 
I would agree with this if we were talkng about min payments. BUT, you are still talking about percentage per dollar. If you look at hard money going out on a monthly basis.  It is sometimes more beneficial to pay a lump sum towards the highest balance even if it is the lower of the two interest rates... What that does is bring down the monthly interest amount on the larger balance.  But again it all depends on your goals.
 
 
Whatever you are payign in interest is EXTRA money.  Would I rather pay an extra 19.50 a month or 2 bucks?



Message Edited by Brammy on 01-02-2008 05:36 PM
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TheCynicalOne
Posts: 741
Registered: ‎11-05-2007
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Re: Need advice on paying down debt



Brammy wrote:
 
Whatever you are payign in interest is EXTRA money.  Would I rather pay an extra 19.50 a month or 2 bucks?


Message Edited by Brammy on 01-02-2008 05:36 PM


Thanks for putting things into perspective.  Logical way of looking at it.  Every lender's going to make money off of us eventually, it's how they exist. But we still need to get the most bang for our buck in reasonable manner.
Time is credit's best friend...it can heal any wound.
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marty56
Posts: 5,696
Registered: ‎10-06-2007
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Re: Need advice on paying down debt

From someone who was over 70k in CC debt 5 years ago I would say that the goal is to pay the smaller balances first.  The reason is that I was able to justify in my mind charging on a CC that was close to being maxed out vs one that had nothing on it.  Once I started to see porgress in cards being paid off, it was easier to break the charging cycle.
 
5 years ago I was noy mature enouh to consolidate bills into one but I just BT'd my last 2 outstanding CC bils at high (> 20%) into a no interest CC for 15 months which will be PIF in 6.  Saved myself 500 in interest and may have an increase in my FICO scores.  The old Marty would have then maxed out the no interest CC and started using the just PIF accounts.  No mas now.
 
 
 
 
11/28/2014 FICO: EQ: 796 EX:788 TU:803
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cheddar
Posts: 6,794
Registered: ‎09-29-2007
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Re: Need advice on paying down debt

[ Edited ]

Brammy, no disrespect intended here. :smileyhappy:  I don't like to be so argumentative, but the math just doesn't add up.  It's not really a matter of agreeing to disagree.

Your HARD money going out, as you put it, will be less if you put whatever resources you have toward your highest rate balances first.  It doesn't matter if that highest rate balance is $50 or $50,000.  Pay it off first, and you will pay less in interest than if you didn't.
 


Brammy wrote:
Whatever you are payign in interest is EXTRA money.  Would I rather pay an extra 19.50 a month or 2 bucks?
 

Yes, but this is a false choice.  It is not a choice between paying $19.50 a month vs paying $2.50, because to avoid the $19.23 a month, you would need to make a payment of $2100.  To avoid the $2.50 would only require a payment of $250.
 
I'm coming from the assumption that there is a certain amount of funds available to pay down debt in a given month, and you are trying to decide how to allocate your payments in order to minimize interest.  As others have mentioned, there may be completely valid reasons for not choosing to minimize interest, but that is the question I am talking about.  The answer to that question will always be to apply it to the higher rate balance first, then pay what's left towards the lower rate.
Let's use your example:
 
CC1: $2100 @ 10.99% = $19.23/mo interest
CC2: $250 @ 12% = $2.50/mo interest
 
Now, let's say you have $1K to pay towards your CC debt.  If you apply it to the higher balance first, you end up with:
 
CC1: $2100 - $1000 payment = $1100 @ 10.99% = $10.07
CC2: $250 (no payment) @ 12% = $2.50
 
So you pay $12.57 in interest that month.
 
Apply it towards the higher rate balance first, though, and you get:
 
CC1: $2100 - $750 payment = $1350 @ 10.99% = $12.36
CC2: $250 - $250 payment = $0
 
In this case, you only pay $12.36 in interest for the month.
 
In either case, you start with $2350 in CC debt and end with $1350.  If you pay off the lower rate card first you are doing so at the expense of paying the card with the higher rate.  A given amount of money left on a card at a higher rate is always going to cost you more HARD dollars going out then if it were left on a card with a lower rate.
 


Message Edited by cheddar on 01-02-2008 07:19 PM
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Brammy
Posts: 5,436
Registered: ‎03-10-2007
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Re: Need advice on paying down debt

[ Edited ]
My point is simply to reduce the amount of EXTRA money you are paying out. If you can get the EXTRA amount of money on the higher amount down low enough to offset the other amount, you are doing yourself a bigger favor.  As I said, not talking minimums her.  Pay off half of the larger amount,yes you still have 10 bucks going out on that one. IMHO the 2.00 savings reallocation the 250 to the lower amount just doesn't really offset it.
 
My goal is to reduce the amount of interest I pay over any given amount of time.  Again we're not talking min monthly payments here either.  Your payments would reallocate on a monthly basis based on balances and the amount of interest paid.  I thought it was weird too til I did the math on the payment plan my fin software set up. It took a lot of time for me to trust the software and wrap my head around the premise. I was setting the min payments higher on the lower balance cards based on your premise. I didn't understand why it was reallocating a larger payment to a 5.99% interest rate than to a store card (we all know the interest rate on those).   It did reccommend I xfr to balance to the lower rate card but as long as I reported the balance, as is, it mapped out a plan like the above.
 
When I checked pay balance on store card in full every month, the total interest I would pay over the life of my DR plan was actually more (that is without changing the amount allocated towards debt). 


Message Edited by Brammy on 01-03-2008 01:22 AM
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Noah_Bodie
Posts: 4,635
Registered: ‎03-11-2007
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Re: Need advice on paying down debt

The simple reality is that if one is in debt to be paid off over a period of time then one is going to be paying minimums on at least some of the bills--otherwise you woulda PIF things as they rolled in.
 
If you wanna add on a few bucks to every payment to ensure at least something gets paid down on the principle, well OK, if you want or need that psychological advantage.
 
Even Dave Ramsey and his flock will admit, when pressed to the wall, that his belief system of necessary pain and suffering while here on Earth, and the paying off of smallest debts first, is simply psychological. A lot of people need that, but if you can analyze it objectively ya always pay higher interest debt first to get outta debt the fastest and for the least amount of money outta pocket in finance charges.
 
Valued Contributor
netpanther
Posts: 1,694
Registered: ‎08-07-2007
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Re: Need advice on paying down debt

[ Edited ]


Noah_Bodie wrote:
The simple reality is that if one is in debt to be paid off over a period of time then one is going to be paying minimums on at least some of the bills--otherwise you woulda PIF things as they rolled in.
 
If you wanna add on a few bucks to every payment to ensure at least something gets paid down on the principle, well OK, if you want or need that psychological advantage.
 
Even Dave Ramsey and his flock will admit, when pressed to the wall, that his belief system of necessary pain and suffering while here on Earth, and the paying off of smallest debts first, is simply psychological. A lot of people need that, but if you can analyze it objectively ya always pay higher interest debt first to get outta debt the fastest and for the least amount of money outta pocket in finance charges.
 


There's a lot to be said for psychological motivation. We are, after all, human beings, who are emotion driven. Just like a Dr. will tell you whatever works to initially get you to quit smoking- if it is a "smaller" bad habit ( I can't put of any other way to put it) - if it gets you to quit smoking, they will tell you whatever works, and then deal w/ that habit next. I.E.- if chewing gum (bad habit if it is not sugar free) or eating a little more makes you gain 10 lbs, but overall you have quit smoking and not picked back up- they will turn their heads while you gain the extra 10 lbs and tell you to then concentrate on the ten lbs. after a good 3-6 mos of NOT smoking.
 
Again, we are emotion driven beings. Logically and on paper, paying off the higher int. rate is the most appropirate. However, being the illogical beings that we are, as Spock used to say- there is a lot to be said for the psycholigical motion one gets once paying off the smallest balance first.
 
To sum up- of course it make the most sense to pay off highest balance first. But when someone is looking at five bills they need to pay in full, and in two mos. they can pay off one and be done w/ it rather than take 6 mos to a year to pay off another, I am willing to say the most people get the most emotional leverage paying off the smallest balance first.
 
Contradictory-I know. But then again, we are emotional beings. If we were pure action/logically driven- most of us wouldn't be on this board.


Message Edited by netpanther on 01-03-2008 01:36 PM
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netpanther
Posts: 1,694
Registered: ‎08-07-2007
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Re: Need advice on paying down debt

Oh- it always helps to be informed too. When I was paying off my bills- I had no clue to pay off the highest int. first.
 
At least this way people have a choice- and are more aware too.

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