Credit Card Payoff Plan - Please Advise

[Anonymous]

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@Anonymous wrote:
The advice I can offer is more on the budgeting side. You and your husband make 123k. You need to live off of as little of that as possible for your normal living expenses (food, shelter, transportation). There are people who live off of 40k salaries before tax is deducted. You need to shoot somewhere between the 40k-50k mark. Don't eat out, don't buy any gifts, cancel the cable. Trip planned for your anniversary or summer vacation? Cancel it. No ridiculous phone bills. Take all that extra savings and plug it into your debt. Still save cash for a rainy day. The 2 of you should sit down and look at all your current monthly expenses and trim that fat. Good luck on your journey.

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This is really the crux of it here.  Last thing you should be concerned with is your credit scores.  Also, forget saving for a down payment on a home until these are wiped out.  It doesn't make financial sense.  You mentioned you know you'll max your cards again.  If that's the case, get rid of them once they are paid off.  Seriously.  The only reason to use credit is to make money off the small bonus they provide while paying them in full, otherwise they are hurting you financially.  Get your budgeting in order (also recommend Dave Ramsey, or if you really want to get serious, Mr Money Mustache).  It's time to really look at where your money is going, track it in Mint or Personal Capital.  Eliminate all unnecessary spending and optimize everything.  Attack your highest interest debt first, as if you have a hair on fire emergency (which is what this is).  Then move to the next down the list.  With your income level, I think you can do this quicker than you think if you attack it hard.

The good news is I think you're young in your careers (from what I can gather), and can course correct.  But unless you make some massive changes in your personal finance, this problem will not be solved by just paying off the debt.  

[ldvwife1]

Hello,

Thanks to your wonderful report, I would start at the bottom and work your way up. You stated that you have $2750 available so next month you could payoff Old Navy, Macy’s and Discover; the following  month Jet Blue; the following two months both Capital One accounts and Hilton Honors; starting with month five you will have roughly $3150 available monthly (available monthly payments form the 7 accounts you could payoff in 4 months). Chase Freedom and Bank of America could be paid off in months 5-7 etc.

That’s my suggestion, I hope it helps.

[Anonymous514]

Pay the small ones first then focus on the big ones is what I would do. I would also considering closing a few of the low limit cards as you do? Sometimes we are tempted to spend above are needs. But the fact is credit cards are not really a need. The only thing I use mine now are too earn cashback and on huge expenses if needed. 

[Anonymous]

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@Anonymous514 wrote:

Pay the small ones first then focus on the big ones is what I would do. I would also considering closing a few of the low limit cards as you do? Sometimes we are tempted to spend above are needs. But the fact is credit cards are not really a need. The only thing I use mine now are too earn cashback and on huge expenses if needed. 

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Well, very little is "really a need".   Properly used, credit cards can be good financial tools:

1) rewards and benefits

2) additional protections (although some of these are disappearing from some cards)

3) float (for those not AZEO or "payoff each transaction as it posts" obsessed)

And yes, there are dangers but awareness can help.

As mentioned in this thread, using snowball has significant downsides, and should be used only when really necessary for those that need the psychological feedback

[SouthJamaica]

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@Anonymous wrote:

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@Anonymous514 wrote:

Pay the small ones first then focus on the big ones is what I would do. I would also considering closing a few of the low limit cards as you do? Sometimes we are tempted to spend above are needs. But the fact is credit cards are not really a need. The only thing I use mine now are too earn cashback and on huge expenses if needed. 

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Well, very little is "really a need".   Properly used, credit cards can be good financial tools:

1) rewards and benefits

2) additional protections (although some of these are disappearing from some cards)

3) float (for those not AZEO or "payoff each transaction as it posts" obsessed)

And yes, there are dangers but awareness can help.

As mentioned in this thread, using snowball has significant downsides, and should be used only when really necessary for those that need the psychological feedback

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I don't recommend the snowball method because of psychological feedback. I recommend it because I believe it is the fastest way to pay off the debt due to the cash flow being added on each time a balance-carrying account is paid off and sock drawered.

I disagree with your math, but I'm not enough of a mathematician to give you the proof; I'm just basing my advice on experience. IMHO the fastest way to get out of credit card debt is to (1) stop using cards (2) pay off smallest balances first (3) move up the ladder based on size of balance.

In addition to the rate of interest there's another factor: the number of accounts which are charging interest. This has to do with the particular vagaries of the credit card business. If I had 3 accounts on which I'm carrying balances, all with similar balances, of course I'd pay off the one with highest interest rate first. But if I had the ability to knock one of them off, and get it out of the interest-charging column altogether, I'd go after that one in a heartbeat.

[Anonymous]

Snowball is the fastest way to have less debtS. But not less debt. If the interest rates are close the the same, the difference is probably negligible. But if the higher balance one is near 30% and the tiny debt is at 15%, you're mathematically better to throw money at the 30% debt. 

[digitek]

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@Anonymous wrote:

Snowball is the fastest way to have less debtS. But not less debt. If the interest rates are close the the same, the difference is probably negligible. But if the higher balance one is near 30% and the tiny debt is at 15%, you're mathematically better to throw money at the 30% debt. 

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Agree with this, the math doesn't lie, high interest method will save you money in the long run, but also that as long as APR's/balances are remotely close the difference is almost negligible.  I wanted to say the psychological part of the snowball method should not be downplayed, seeing progress and gaining momentum can be really powerful.

A lot of good advice has been given here, but I would really want to stress the importance of of a budget.  You both need to sit down and define exactly how much you are going to spend in certain categories of things, and then you both need to track your spending and stay within the budget you have set for yourself.  Not having a budget helped to get you to this position, having one will really help you to get out of it.  I can't recommend a computer budgeting application like Mint enough.  It will sink all your accounts into one place for you.  You can track every dollar you spend automatically, you just have to setup the accounts once and it will sync all of them daily.  It will auto-categorize your transactions and can be used to follow your budget.

Good luck, you can do it.  Just consider it a life lesson, we all make mistakes, was refreshing to see someone own up to it so honestly, shows good character.

[Anonymous]

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@SouthJamaica wrote:

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@Anonymous wrote:

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@Anonymous514 wrote:

Pay the small ones first then focus on the big ones is what I would do. I would also considering closing a few of the low limit cards as you do? Sometimes we are tempted to spend above are needs. But the fact is credit cards are not really a need. The only thing I use mine now are too earn cashback and on huge expenses if needed. 

---

Well, very little is "really a need".   Properly used, credit cards can be good financial tools:

1) rewards and benefits

2) additional protections (although some of these are disappearing from some cards)

3) float (for those not AZEO or "payoff each transaction as it posts" obsessed)

And yes, there are dangers but awareness can help.

As mentioned in this thread, using snowball has significant downsides, and should be used only when really necessary for those that need the psychological feedback

---

I don't recommend the snowball method because of psychological feedback. I recommend it because I believe it is the fastest way to pay off the debt due to the cash flow being added on each time a balance-carrying account is paid off and sock drawered.

I disagree with your math, but I'm not enough of a mathematician to give you the proof; I'm just basing my advice on experience. IMHO the fastest way to get out of credit card debt is to (1) stop using cards (2) pay off smallest balances first (3) move up the ladder based on size of balance.

In addition to the rate of interest there's another factor: the number of accounts which are charging interest. This has to do with the particular vagaries of the credit card business. If I had 3 accounts on which I'm carrying balances, all with similar balances, of course I'd pay off the one with highest interest rate first. But if I had the ability to knock one of them off, and get it out of the interest-charging column altogether, I'd go after that one in a heartbeat.

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Then all I can suggest you do is study the math!   It depends how you frame it perhaps.     I am assuming you have $X to put towards all credit card debt each month say.   IMO, advocates of the snowball method confound this by splitting this into minimum payments needed and "extra".   Then, as an account gets paid off, the minimum payment on the account now becomes part of the "extra" which you can apply to another account and that sounds exciting.   

But paying as much as possible to the highest interest account will reduce the time taken to eventually pay off all accounts,.   Each account is going to add interest each month, the amount depending on the rate and the outstanding balance.   By reducing the balance on the highest rate amount, you reduce the total  amount of interest that is added, even comparing to a lower interest account that gets completely paid off.  This is simple math.   And even the main advocate of the snowball method agrees with that:

Many people have pointed out that it actually makes more mathematical sense tackle the debt with the highest interest rate first. But a recent study by two associate professors at Northwestern University’s Kellogg School of Management proves that getting out of debt isn’t about math—it’s about changing behavior.   

(https://www.daveramsey.com/blog/scientists-say-the-debt-snowball-method-works, emphasis in original)   The advantage is pychological.

Nothing to do with the vageries of the business.

[SouthJamaica]

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@Anonymous wrote:

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@SouthJamaica wrote:

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@Anonymous wrote:

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@Anonymous514 wrote:

Pay the small ones first then focus on the big ones is what I would do. I would also considering closing a few of the low limit cards as you do? Sometimes we are tempted to spend above are needs. But the fact is credit cards are not really a need. The only thing I use mine now are too earn cashback and on huge expenses if needed. 

---

Well, very little is "really a need".   Properly used, credit cards can be good financial tools:

1) rewards and benefits

2) additional protections (although some of these are disappearing from some cards)

3) float (for those not AZEO or "payoff each transaction as it posts" obsessed)

And yes, there are dangers but awareness can help.

As mentioned in this thread, using snowball has significant downsides, and should be used only when really necessary for those that need the psychological feedback

---

I don't recommend the snowball method because of psychological feedback. I recommend it because I believe it is the fastest way to pay off the debt due to the cash flow being added on each time a balance-carrying account is paid off and sock drawered.

I disagree with your math, but I'm not enough of a mathematician to give you the proof; I'm just basing my advice on experience. IMHO the fastest way to get out of credit card debt is to (1) stop using cards (2) pay off smallest balances first (3) move up the ladder based on size of balance.

In addition to the rate of interest there's another factor: the number of accounts which are charging interest. This has to do with the particular vagaries of the credit card business. If I had 3 accounts on which I'm carrying balances, all with similar balances, of course I'd pay off the one with highest interest rate first. But if I had the ability to knock one of them off, and get it out of the interest-charging column altogether, I'd go after that one in a heartbeat.

---

Then all I can suggest you do is study the math!   It depends how you frame it perhaps.     I am assuming you have $X to put towards all credit card debt each month say.   IMO, advocates of the snowball method confound this by splitting this into minimum payments needed and "extra".   Then, as an account gets paid off, the minimum payment on the account now becomes part of the "extra" which you can apply to another account and that sounds exciting.   

But paying as much as possible to the highest interest account will reduce the time taken to eventually pay off all accounts,.   Each account is going to add interest each month, the amount depending on the rate and the outstanding balance.   By reducing the balance on the highest rate amount, you reduce the total  amount of interest that is added, even comparing to a lower interest account that gets completely paid off.  This is simple math.   And even the main advocate of the snowball method agrees with that:

Many people have pointed out that it actually makes more mathematical sense tackle the debt with the highest interest rate first. But a recent study by two associate professors at Northwestern University’s Kellogg School of Management proves that getting out of debt isn’t about math—it’s about changing behavior.   

(https://www.daveramsey.com/blog/scientists-say-the-debt-snowball-method-works, emphasis in original)   The advantage is pychological.

Nothing to do with the vageries of the business.

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Only those accounts which haven't been paid off are adding interest.

Those which have been paid off are not assessing interest in any amount.

[Anonymous]

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@SouthJamaica wrote:

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@Anonymous wrote:

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@SouthJamaica wrote:

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@Anonymous wrote:

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@Anonymous514 wrote:

Pay the small ones first then focus on the big ones is what I would do. I would also considering closing a few of the low limit cards as you do? Sometimes we are tempted to spend above are needs. But the fact is credit cards are not really a need. The only thing I use mine now are too earn cashback and on huge expenses if needed. 

---

Well, very little is "really a need".   Properly used, credit cards can be good financial tools:

1) rewards and benefits

2) additional protections (although some of these are disappearing from some cards)

3) float (for those not AZEO or "payoff each transaction as it posts" obsessed)

And yes, there are dangers but awareness can help.

As mentioned in this thread, using snowball has significant downsides, and should be used only when really necessary for those that need the psychological feedback

---

I don't recommend the snowball method because of psychological feedback. I recommend it because I believe it is the fastest way to pay off the debt due to the cash flow being added on each time a balance-carrying account is paid off and sock drawered.

I disagree with your math, but I'm not enough of a mathematician to give you the proof; I'm just basing my advice on experience. IMHO the fastest way to get out of credit card debt is to (1) stop using cards (2) pay off smallest balances first (3) move up the ladder based on size of balance.

In addition to the rate of interest there's another factor: the number of accounts which are charging interest. This has to do with the particular vagaries of the credit card business. If I had 3 accounts on which I'm carrying balances, all with similar balances, of course I'd pay off the one with highest interest rate first. But if I had the ability to knock one of them off, and get it out of the interest-charging column altogether, I'd go after that one in a heartbeat.

---

Then all I can suggest you do is study the math!   It depends how you frame it perhaps.     I am assuming you have $X to put towards all credit card debt each month say.   IMO, advocates of the snowball method confound this by splitting this into minimum payments needed and "extra".   Then, as an account gets paid off, the minimum payment on the account now becomes part of the "extra" which you can apply to another account and that sounds exciting.   

But paying as much as possible to the highest interest account will reduce the time taken to eventually pay off all accounts,.   Each account is going to add interest each month, the amount depending on the rate and the outstanding balance.   By reducing the balance on the highest rate amount, you reduce the total  amount of interest that is added, even comparing to a lower interest account that gets completely paid off.  This is simple math.   And even the main advocate of the snowball method agrees with that:

Many people have pointed out that it actually makes more mathematical sense tackle the debt with the highest interest rate first. But a recent study by two associate professors at Northwestern University’s Kellogg School of Management proves that getting out of debt isn’t about math—it’s about changing behavior.   

(https://www.daveramsey.com/blog/scientists-say-the-debt-snowball-method-works, emphasis in original)   The advantage is pychological.

Nothing to do with the vageries of the business.

---

Only those accounts which haven't been paid off are adding interest.

Those which have been paid off are not assessing interest in any amount.

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Yes, of course.   So lets say you have 2 accounts  

$100 at 10%

$50 at 5%

And lets say that this month there was no minimum payment needed on either and you have $50 to apply towards the debt.  

Snowball:   End up with 

$100

$0

The next month interest is added to the $100 at approx $100*.1/12  = $5/6  and nothing from the paid-off account

Highest first leaves you with

$50

$50

The next month interest is added to the first account at approx $50*.1/12 = $5/12

And to the second account at approx $50*.05/12 = $5/24

Together a total of $15/24.   Snowball is $20/24, a 33% increase

There is no magic here.   All that is happening is that you have $X to split up between accounts, which accrue interest at different rates.   Any amount of the $X that you don't use to pay down the highest rate of interest is going to cost you more.  Looking at it the other way, you have $100 to divide between two savings accounts, one earning 5% and one earning 10%.   In that case, common sense (and the math) tells you to put it all in the 10%.   The snowball method would have you look at something else, like put in the larger, or the smaller or make it even......