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I need some advice on a plan of attack

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vanillabean
Valued Contributor

Re: I need some advice on a plan of attack

 


@RobertEG wrote:

 

I doubt that your spouse would, if asked, willingly flush $200 a month down the toilet.


 

Smiley Surprised Smiley Very Happy Smiley Tongue Smiley Wink

 

Message 11 of 21
marty56
Super Contributor

Re: I need some advice on a plan of attack

The best approach to getting out of debt is to use the debt snowball approach by making minimum payments on all but the account with the smallest balance and throwing any extra to that account till it is PIF and then attack the next smallest balance and so on.  This approach is FICO friendly also.  It is a prven method used by both Dave Ramsey and DMP programs and from my own personal experience in a DMP program, really works.  It is also the simplest to manage.  You also may consider a DMP program which can also reduce your interest rates so you would also beenfit financially as well.

1/25/2021: FICO 850 EQ 848 TU 847 EX
Message 12 of 21
vanillabean
Valued Contributor

Re: I need some advice on a plan of attack

 


@marty56 wrote:

 

The best approach to getting out of debt is to use the debt snowball approach by making minimum payments on all but the account with the smallest balance and throwing any extra to that account till it is PIF and then attack the next smallest balance and so on.


 

I don't know if debt-snowball is better than highest-interest.

Let's say you have one card with a $10,000 debt at 30% and ten cards each with a $1,000 debt at 10%.

If you can pay $800 a month towards your credit card debt, would the debt-snowball simplicity make up for the highest-interest savings?

 

Message 13 of 21
Anonymous
Not applicable

Re: I need some advice on a plan of attack

Debt snowballing comes in a variety of flavors - some prefer hitting lowest balance first; some highest balance first; some go fo highest interest rate.  If you like the debt snowballing concept (I do) pick a flavor that works for you, or come up with your own hybrid. 

 

The bottom line on debt snowballing is that when one debt is paid, you snowball the funds from paying off that debt into paying off another debt, rather than viewing it as available cash to spend.  Good stuff!

Message 14 of 21
Woolfman
Established Contributor

Re: I need some advice on a plan of attack

I think we have decided to go with paying the biggest off first and work down from there.

Message 15 of 21
Anonymous
Not applicable

Re: I need some advice on a plan of attack

Woolfman: May I suggest you pay off the credit card account with the highest interest rate. And if you have a credit card with a low interest rate, check on doing a transfer from your high interest credit card. Even, if you don't have a high credit limit on your low interest credit card. A partial transfer will help lower the interest you are paying each month. Keep payinf as much as you can on the high per cent rate card, until you get if down to PIF each month. Hope this works for you. I started this about 18 months ago. And am now on my way to paying off a credit card which had a very high interest rate. I still have $1,300. to pay off.
Message 16 of 21
DanMobbs
New Member

Re: I need some advice on a plan of attack

It looks like the highest-interest method is what this website uses

 

http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp

 

I put Wolfman's cards in there, and he/she will be debt free in 2 years and 5 months at a fixed $800/mo, as you suggested.

 

That doesn't account for when the 0% cards expire or if the 0% defaults to something under or above to the highest card's rate of 15.99%.

 

I think both Suze Orman and Dave Ramsey reccomend using the highest-interest method.

 

Suze Orman did a great job of explaining that method on Oprah maybe about 1.5 years ago.

Message 17 of 21
vanillabean
Valued Contributor

Re: I need some advice on a plan of attack

It is correct the web site uses highest-interest. I whipped up a small script, and the total interest is about the same. What surprised me is that debt-snowball carries only a little extra interest, nothing like say 50% more.

 

When I went to sleep last night, I set the alarm clock for 3 a.m. It woke me up then, at which time I set the alarm clock's time back to 2 a.m. and went back to sleep. An hour later it woke me up again because I didn't turn off the alarm.

 

Couldn't fall asleep again. That's how I had time to whip up that script. Smiley Very Happy Just kidding. Smiley Tongue

 

Message 18 of 21
haulingthescoreup
Moderator Emerita

Re: I need some advice on a plan of attack

 


@Anonymous-own-fico wrote:

It is correct the web site uses highest-interest. I whipped up a small script, and the total interest is about the same. What surprised me is that debt-snowball carries only a little extra interest, nothing like say 50% more.

 

When I went to sleep last night, I set the alarm clock for 3 a.m. It woke me up then, at which time I set the alarm clock's time back to 2 a.m. and went back to sleep. An hour later it woke me up again because I didn't turn off the alarm.

 

Couldn't fall asleep again. That's how I had time to whip up that script. Smiley Very Happy Just kidding. Smiley Tongue

 


 

Which is not all that surprising. We tend to get all anxious about nitty-gritty details, without projecting them out to real dollars and cents, and only when we do, do we realize that the dollar amount often isn't that different. Good for you for looking at that.

 

Both of these approaches are debt snowballing. The only difference is whether you target the highest-APR first or the lowest-balance first. Lowest-balance is good for those who are feeling overwhelmed and secretly convinced that they're defeated, and that nothing whatever will ever change. Paying off a few low-balance cards can be very empowering, and that can be incredibly important at keeping you on track.

 

But for a straight save-every-penny approach, high APR is the best approach. Even then, as you discovered, you don't necessarily save all that much, depending on how high the balances are and how insane the interest rates are.

 

Whichever target approach you choose, the snowball tactic is the same: pay minimums on everything but the targeted account, and throw everything you have at that one. Once it's paid off, take that same amount of money (don't fudge and reduce the payment), add it to the minimum you were paying on the next card in line, and go after that one. Wash, rinse, and repeat, over and over, until it's all done.

 

Either approach is perfectly valid, for different reasons. What matters is wading in and doing it. Smiley Happy

 

Congrats on tackling this! You'll be amazed, after three or four months, how empowered you feel.

 

Oh, and with the alarm clock thing, I thought that daylight savings was last weekend, not this weekend. I re-set all the clocks last Saturday night and enjoyed my extra hour of sleep time. It was sheer dumb luck that I found out around 8 Sunday morning that I was wrong, and that I was running an hour behind. I joined my new church last Sunday, and it was already printed in the bulletin. That would have been somewhat more-than-awful had I missed the whole thing.  Smiley Tongue

* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Message 19 of 21
vanillabean
Valued Contributor

Re: I need some advice on a plan of attack

hauling, that reminds me.

 

I recently read a book (read the first few chapters and skimmmed the rest), whose title is Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life. It's about how our emotions can stand in the way of handling money well.

I didn't read enough of it to know whether it deals with lowest-balance vs high-interest, but got the impression that you shouldn't simply settle for the system that suits you best. Instead you need to improve yourself before you can improve your finances.

The middle chapters of many personal finance books deal with how to organize your personal finances. In its simplest form, it's about putting it down on paper. If you have an outline on a piece of paper of how various methods will pay off your debt, it could be an eye-opener.

 

But I wonder whether a overwhelmed person would find the book among the others on the shelf. Its title somehow isn't quite right.

 

Message 20 of 21
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