advice on a paying balances down faster

[NICKG]

I was wondering what you guys think about this, or what advice people can give on a way to pay down debt faster. To this date I have been doing multiple payments on every balance i have on a weekly or biweekly schedule(paying as much as i can in that weeks budget). I have wiped out 25k in debt in a couple of years. Now with the way companies are lowering credit limits to equal or less than balances on the credit cards, i am thinking an overhaul of this method is needed. WITHOUT wiping my savings clean, or preaching about carrying balances (most here know what happened tome with my house) I wanted to see what advice i can get on this plan
my plan is to pay minimums(not the card min, mine which is 2x the card min) on a few cards and take the money that I was paying extra on those accounts and focus it on 1 specific account at a time until it is paid off (i have 5 accounts total that I want to pay off and the sum balance is like $8k) this would effectively free as much as 500 monthly to pay lump payments

The old way that i am doing things is a proven winner, but i think that a focus on specif accounts my be better than paying across the board and spreading thin (relatively speaking, i pay 200 on a card with a 25 minimum payment)
what do you think?

[boba]

I think what you are doing is to be admired. Whatever strategy you find works for you and you can maintain is the one to use.

A suggestion would be to focus on the account with the highest interest first, you may be doing that already if so good for you. You should also look at all costs associated with each account to get the high cost ones cleaned up

[Tishabet]

Sounds like a good idea to me, just be smart about strategizing which accounts you prioritize i.e. go after the highest interest rate. But also don't make the mistake of putting all of your cash into this effort if you don't already have a cushion of liquid cash tucked away; paying off your debt is an excellent idea which will have huge benefits for the medium to long term, but if you lose your income tomorrow you want to make sure you have a good cash position to see you through in the short term as well.

[71T Targa]

I'll preface this with the understanding that this isn't a method I've used, just advice I've been given.

Take the debt with the highest interest and focus on that one. Make the minimum payment on the others while making the maximum payment you can on that one. Once that one is paid, take what you were paying on it and apply it to the next highest interest loan. Keep doing this till they're all paid.

For example, if you have 5 loans to pay off and you are paying $200 a month on each loan, start paying $100 on each of the 4 lowest interest loans, and $600 on the one with the highest interest.

Once that one is paid, pay $100 on the three lowest interest loans, and $700 on the highest remaining loan. Then ($100, $100, $800), ($100, $900), and finally $1000 on what was originally you're lowest interest loan.

The key I've been told, is not to get 'other' debt while this is going on. And not to pay down 1/2 of your debt and then reduce your monthly payment as well.

I'm not a CPA, nor do I play one on TV. Your millage may vary. Results are not typical. Etc. etc...

[NICKG]

thanks, I am currently sitting on 2 months mortgage in the savings, but i add 50 every week to savings in addition. I also have 100 monthly set into another bank entirely for an extra measure of emergency funds in case i am stuck needing cash (this account is small however)
all of the accounts were originally prioritized based on balance first , but changing to interest rates seems like what the goal will become as most all have about the same balances save one with a good bit more at 0% locked in till 2011

[masraum]

Do you have a couple of debts of varying amounts? If so, pay the minimum on the largest debts and then pay your max on the smallest.

ie Lets say you've got a cc at $1000, another at 5000, and a car at 12000.

minimum payment on the 1000 is $20, on 5000 is $100, and on the car is $300.

You've got $600/month that you can use to pay off debt.

Pay $200 on the 1000 credit card. then pay the minimums on the other 2. In 6 months (because of interest) you'll have that card paid off. Then, put $300 towards the 5000 credit card. You'll have that paid off in a year and a half. THen put the whole 600 towards the car.

Don't worry about the interest rates. Worry about getting rid of the smallest debt first. You'll see the results of your work and will be inspired to keep going.

[masraum]

Originally Posted by NICKG

thanks, I am currently sitting on 2 months mortgage in the savings, but i add 50 every week to savings in addition. I also have 100 monthly set into another bank entirely for an extra measure of emergency funds in case i am stuck needing cash (this account is small however)
all of the accounts were originally prioritized based on balance first , but changing to interest rates seems like what the goal will become as most all have about the same balances save one with a good bit more at 0% locked in till 2011

Well, based on the fact that the balances are similar, then yes, I'd use the interest rate as the next factor. Can you do any low interest rate balance transfers?

[Tishabet]

Originally Posted by masraum

Can you do any low interest rate balance transfers?

+1, this could be really advantageous... interest can kill you

[fastfredracing]

I have done exactly what masraum suggested. I am not an accountant or a money guy, but I hustled down the smaller balance loans, and paid them off, and applied the same ammount to the next loan when the first was paid off. I am down to about half of the larger of the three loans I had, should be out by next year at this time.
I also transfer balances to 0% credit cards as much as I can. I carried my larger balance interest free for the last two years. I hope I can pull it off again this year

[NICKG]

Originally Posted by Tishabet

+1, this could be really advantageous... interest can kill you

i would like too, but it seems that either the area i am in is high foreclosure or i am out of the range of thir standards(i am over 700 fico though). All the cards i have are not doing transfers right now sor whatever reason

[NICKG]

Originally Posted by fastfredracing

I have done exactly what masraum suggested. I am not an accountant or a money guy, but I hustled down the smaller balance loans, and paid them off, and applied the same ammount to the next loan when the first was paid off. I am down to about half of the larger of the three loans I had, should be out by next year at this time.
I also transfer balances to 0% credit cards as much as I can. I carried my larger balance interest free for the last two years. I hope I can pull it off again this year

that is essentiall what i have done as i paid off the cards, i applied that same payment in addition to the ones i was already making to another card...

I think that I am gonna review all the cards tonight and implement my modified plans for next month

[phoenix_iii]

What only matters is the % you are being charged for the 'credit'. Pay the higher % first. That's it.

[Porsche-O-Phile]

Given the current economy it might actually make sense to pay minimums (assuming you have fixed rates) and pay off the bulk of the balances in 2-3 years when inflation will be at 40% annually.

A little tongue-in-cheek, a little bit serious (like most of what I post). Something to think about...

[NICKG]

so you think that we are going into a period of hyper inflatoion? like germany after ww1? personally i would welcome that because I would pay the note on my house off much faster...but i shudder to think if i would have a job

[svandamme]

i worked down the smallest ones first
then the bigg'ns

Make a list of all your monthly recurring bills, and your upcoming non monthly ones
the first day(s) after the pay check comes in, all your bills should be done so all you need till the next paycheck is food ,transport (and in my case, ciggies).

Those day to day things, can be ballpark estimated.. underestimate , and use what remains of the paycheck to pay off debt the same day the paycheck came in...leave just the day to day budget.

If it's not on your bank account, you won't spend it so easily.
Then as the month progresses, and you start to run out of cash (you will), fight the urge to take back money from the credit lines...

After a while it will become a game...How not to not take back money from the debt pool, and you'll start to live more economical... You'll start to think twice about "do i need to buy this", and you'll start thinking that way earlier and earlier in the month... Till at some point, at the end of the month, you'll have money left.. which you then use along with the pay check to pay off more debt.

Other then the mortage of the house i just bought, i'm debt free now

[Porsche-O-Phile]

Originally Posted by NICKG

so you think that we are going into a period of hyper inflatoion? like germany after ww1? personally i would welcome that because I would pay the note on my house off much faster...but i shudder to think if i would have a job

Absolutely.

The government is running the printing press like crazy right now. Add to it there's an INCENTIVE to devalue the currency because it makes the billions and trillions easier to "pay off" (they're paying off the debt with dollars that will be worth a fraction of what today's are, but on paper the books will balance).

I know the big banks are ABSOLUTELY hoping for high inflation, as it will help with a lot of the red ink on their books too - particularly crappy mortgages.

It's a simple solution on paper, but obviously it hurts everyone long-term.

I'm betting everything I've got left that we're going to see very high inflation very soon - as in - within 1-2 years. Possibly even hyperinflation.

[m21sniper]

Nick, continually transferring all your balances to new cards with low introductory APR's and then re-transferring it when the trial period ends is extremely effective.

It can save you tons of money on interest long term.

[Oh Haha]

If not mentioned already, pay the card down with the highest interst rate first, no matter how you accomplish it.


We have been dealt a curve in our plan to pay off the one card we have. We were going to use my pension and severance cash outs to pay it off and be credit card debt free. Now, we can't touch any of that money until at least June.

With my income cut in half, we will be a little tight each month. We have cut every where we can and, no matter what/how, we plan to have that card paid off by the end of 2009.

[svandamme]

Originally Posted by Porsche-O-Phile

I'm betting everything I've got left that we're going to see very high inflation very soon - as in - within 1-2 years.

i concur, hence why i made it my top priority to buy a house, and did buy the house.

[Porsche-O-Phile]

Right there with ya'. I was in escrow on a property when I got handed my pink slip. Maddening to say the least. I'm hopeful that I get another job again quickly. If so, buying is one of my top/immediate priorities. RE is a good inflationary hedge.

Even if I can't buy because it takes too long to get working again or whatever, I'm putting $$$ into Euros. I see that as a guaranteed winner in 5-10 years.