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Author: jeangaijin Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308782  
Subject: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 1:02 PM
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Hi Folks --
I have a question and a comment.
The question:
I know that making payments twice on a month on a mortgage, as opposed to once a month, is supposed to help you pay down your debt quicker. Is this also the case with credit cards? I am currently paying down a $6500 cc debt (on two cards) and could easily spread the $500 or $600 I'm paying out each month over weekly payments. Of course it will cost me an extra $2 or so in postage, but will there be a significant interest savings as my average daily balance would be lower?

The comment:
I just discovered that my employer's Credit Union (of which I'm currently NOT a member) offers 12-month loans for 9.5% interest. I plan to take advantage of this, since I'm a little concerned about the negative effects of "card-surfing" and my introductory apr on one card is about to go up to 16%. I figure I could even get a loan to pay off my total cc debt and pay off the whole thing in about a year if I bite the bullet.
I don't remember seeing this as a debt-payment strategy in any of the postings here in the last few months, so I thought I'd mention it. I never paid any attention to the credit union, since I have a branch of my bank a block from my house and I've been happy with their service. But it turns out the credit union has really competitive rates on all kinds of loans!

Thanks for all the great help and inspiration I've had from this board. I've come down from a total indebtedness (including a car & student loan) of about $20,000 and I'm now at about 1/2 that. I am using Quicken to help me budget, and I plan to be totally debt-free by June of 1999.
Cheers.
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Author: sam4d Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1064 of 308782
Subject: Re: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 1:39 PM
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Jean
If you are saying that you will spread out the amount of payment that you are making at the first of the month already, I don't think that it will help as you will be reducing your balance more by paying the extra at the first of the month. If you are saying that you will be making extra payments over and above the amount that you are paying now, then it will help.
Take a good hard look at your employer's credit union and compare it to your bank. Look at fees, loan rates, savings interest and things like late fees and automatic overpayment fees. You may well find that the CU is the place for you to be doing your banking.
Your plan to borrow from the CU and pay off the credit cards is a good one as long as you don't use the cards. Close all but one and keep that one for emergencies or pay it off each month and you will find yourself free and clear very soon.
I'm pulling for ya, we're all in this together.
Stan

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Author: Mike7279 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1065 of 308782
Subject: Re: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 2:43 PM
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(1) bi monthly payments - I did this with a student loan and they credited the 1/2 payment when received and it DID dramatically reduce the interest. I'm not sure if CC companies will work the same. Also, be careful of the mortage companies which show you can reduce your mortgage by making bi weekly payments. You are in fact making the equivalent of 13 monthly payments each year. Sounds okay, but my mortgage holder (Chase Man.) recently tried to get me to select this payment strategy, but the fees were VERY VERY outgrageous for restructering my payments. Here is the rub, you could do it yourself without their "restructering".

(2) Sometimes credit unions loan standards are stricter than banks as far a personal lines of credit. I had this problem a few years ago.

Good luck.

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Author: Bottles Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1067 of 308782
Subject: Re: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 3:12 PM
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Jeangaijin,

The short simple answer is YES. How much it helps is up to you.

Even if your only paying the monthly minimum spaced out of two payment you save a little bit. This is because most CC companies calculate the intrest they charge you by your Average Daily balance. Anytime you reduce your balance sooner than later you end up paying less intrest overall. This perhaps will save some dollars, esp over time. It wouldnt be easy to calculate the saving but it would be a savings.

Think of it as listing you balance out on a calander each day of the month and then adding the total and dividing by the number of days in the month. That is what is meant by Average Daily Balance.

IT wasnt clear if you intended to pay only the monthly min or a double payment or your min plus some extra divided by 2. That would be all the much better.


Good luck

Rob
Bottles

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Author: TMF2Aruba Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1068 of 308782
Subject: Re: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 4:15 PM
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<<I am currently paying down a $6500 cc debt (on two cards) and could easily spread the $500 or $600 I'm paying out each month over weekly payments. Of course it will cost me an extra
$2 or so in postage, but will there be a significant interest savings as my average daily balance would be lower?>>

Hey, Jeangaijin!

I have to tell you I was quite intrigued by your question, and was about to pompously write that there was only one answer to your question--that the only smart move would be to send in a whole payment of say $500 once a month instead of weekly payments of $125, as the interest would constantly be accruing on the entire balance...

But then, I though, hey, maybe not...

So I just made a call to Citibank, and gave them a hypothetical based on your question. Interestingly, it turns out this Fool was fooled! They told me that it could quite possibly be more beneficial to send in those weekly payments because the interest is figured on an average-daily-balance, and the more payments that are sent in (the higher the better, of course), the more that balance is knocked down.

So, there, it seems may be your answer. : )

Hope this helped!

Tony
...but I still am...

Off2Aruba

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Author: pwyles Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1070 of 308782
Subject: Re: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 5:09 PM
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Ranked in order of greatest benifit.

$500 on first day of billing cycle
$250 on on first and 15th day of billing cycle
$125 a week starting on the first day of billing cycle
$500 on last day of billing cycle (the due date)

In each case what was paid during the month was $500, but by paying the $500 on the first day of the cycle you reduced the average daily balance for the whole month. For these calculation I assumed a 30 day billing cycle, and what the balance is at the end of the day.

A B C D
0 Days at balance Balance
1
2 500 on 1st
3 30 0.00 0.00
4 Average Daily Balance 0.00
5
6 $250 on 1st and 15th
7 14 250.00 3500.00
8 16 0.00 0.00
9 Average Daily Balance 116.67
10
11 $125 on 1st, 8th, 15th, and 22nd
12 7 375.00 2625.00
13 7 250.00 1750.00
14 7 125.00 875.00
15 9 0.00 0.00
16 Average Daily Balance 175.00
17
18 $500 on last day
19 29 500.00 14500.00
20 1 0.0 0.00
21 Average Daily Balance 483.33<

~~paul

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Author: pwyles Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1071 of 308782
Subject: Re: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 5:10 PM
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Ranked in order of greatest benifit.

$500 on first day of billing cycle
$250 on on first and 15th day of billing cycle
$125 a week starting on the first day of billing cycle
$500 on last day of billing cycle (the due date)

In each case what was paid during the month was $500, but by paying the $500 on the first day of the cycle you reduced the average daily balance for the whole month.  For these calculation I assumed a 30 day billing cycle, and what the balance is at the end of the day.

           A            B         C         D
0   Days at balance   Balance
1
2   500 on 1st
3                30      0.00      0.00
4   Average Daily Balance          0.00
5
6   $250 on 1st and 15th
7                14    250.00   3500.00
8                16      0.00      0.00
9   Average Daily Balance        116.67
10
11  $125 on 1st, 8th, 15th, and 22nd
12                7    375.00   2625.00
13                7    250.00   1750.00
14                7    125.00    875.00
15                9      0.00      0.00
16  Average Daily Balance        175.00
17
18  $500 on last day
19               29    500.00  14500.00
20                1      0.0       0.00
21  Average Daily Balance        483.33<

~~paul


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Author: TMFRunkle Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1078 of 308782
Subject: Re: (1) Weekly Payments (2) Credit Union Date: 4/8/1998 10:52 PM
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<<I am currently paying down a $6500 cc debt (on two cards) and could easily spread the $500 or $600 I'm paying out each month over weekly payments. Of course it will cost me an extra $2 or so in postage, but will there be a significant interest savings as my average daily balance would be lower?>>

If you are paying 12% on your cards, every $1000 cost you $10 in interest a month. If you lower your average daily balance by $200, you saved the $2 postage. Also, you have the advantage of paying the debt off faster.

George

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