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Author: chriszap One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: $5000 at 4.9% Date: 9/4/2003 6:13 PM
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So, I have a postition in a certain stock worth 10K right now from ESPP shares. I also have $5000 in credit card debt, on one card, with a $22,000 limit. I'm way above water on this in terms of income, and if I were disciplined about it I could pay it off in about 3 months.

I know that one of the tenets of Foolish investing is no credit card debt. However, I'm already in the market by virtue of my ESPP (employee stock purchase program) shares. I also set aside money for short-term savings and sweep it into my brokerage account periodically. At this point, I am considering diversification, and further Foolish investment. I figure the interest rate is low enough, I make fairly large payments and still have enough to save plenty. Is there anything wrong with this assessment? I know the numbers game with credit card interest. I NEVER pay minimums, and I'm "comfortable" dealing with this debt (it was planned) rather methodically.

Advice appreciated!

Thanks,
-chris
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Author: joebedford Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169051 of 308881
Subject: Re: $5000 at 4.9% Date: 9/4/2003 6:23 PM
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I would pay it off! You've got some of your money working for you--get it all working for you. Why "buy" credit that you don't really need?

I wouldn't pull money out of stocks or anything: I vote for being disciplined and paying it off in three months.

Thanks!
Joe

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Author: joebedford Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169052 of 308881
Subject: Re: $5000 at 4.9% Date: 9/4/2003 6:24 PM
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Oh, and welcome to the boards! :-)

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Author: dsemmler Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169056 of 308881
Subject: Re: $5000 at 4.9% Date: 9/4/2003 7:03 PM
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So, I have a postition in a certain stock worth 10K right now from ESPP shares. I also have $5000 in credit card debt, on one card, with a $22,000 limit. I'm way above water on this in terms of income, and if I were disciplined about it I could pay it off in about 3 months.

If it were me, I would not sell the stock to pay the debt. However, I would evaluate my spending to see what I could do to pay the debt off as soon as possible to reduce the interest paid.

For comparison, I have been doing something similar with my student loans and the loan on my Harley. Because the interest rates are relatively low (2.26% on the student loans and 5.9% on the Harley loan), I was directing more funds to savings than towards paying this debt.

However, over the last few months I have begun getting the itch to eliminate the Harley loan and I have been sending a double payment every month. This still allows me to send money to my savings and required me to cut a little of the excess areas in my budget but it is worth it.

FWIW, I would recommend doing what you can to pay the CC debt over the next 3 months and keep the stock where it is for the time being.

dt

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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: 169058 of 308881
Subject: Re: $5000 at 4.9% Date: 9/4/2003 8:22 PM
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So, I have a postition in a certain stock worth 10K right now from ESPP shares. I also have $5000 in credit card debt, on one card, with a $22,000 limit. I'm way above water on this in terms of income, and if I were disciplined about it I could pay it off in about 3 months.

I know that one of the tenets of Foolish investing is no credit card debt. However, I'm already in the market by virtue of my ESPP (employee stock purchase program) shares. I also set aside money for short-term savings and sweep it into my brokerage account periodically. At this point, I am considering diversification, and further Foolish investment. I figure the interest rate is low enough, I make fairly large payments and still have enough to save plenty. Is there anything wrong with this assessment? I know the numbers game with credit card interest. I NEVER pay minimums, and I'm "comfortable" dealing with this debt (it was planned) rather methodically.


Hi Chris,

It sounds like you're doing just fine. You have debt which you can handle, and money set aside in emergency savings. In your case, I don't see any problems--you already even have a cushion with investments.

Since you say you'd be able to pay off your credit card debt in 3 months if you chose, my advice would be to do so. Even though the debt isn't currently an albatross around your neck, why not just get rid of it, and free yourself up with all the more cash to use for investing Foolishly? Just the fact that you even bring the question to the table suggests to me that you'd actually sleep better if you didn't have that debt hanging around. :-)

One other thing that would work to your advantage would be the ability to use the card as a tool to work for you. This would happen simply by paying the full amount each month, and even taking advantage of perks such as airmiles or cash back.

Bottom line: You have to do what makes you the most comfortable. Give it some thought, and good luck!

Tony
...but I still am...

Off2Aruba

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Author: dianakalt Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169063 of 308881
Subject: Re: $5000 at 4.9% Date: 9/4/2003 9:06 PM
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So, I have a postition in a certain stock worth 10K right now from ESPP shares. I also have $5000 in credit card debt, on one card, with a $22,000 limit. I'm way above water on this in terms of income, and if I were disciplined about it I could pay it off in about 3 months.

I know that one of the tenets of Foolish investing is no credit card debt. However, I'm already in the market by virtue of my ESPP (employee stock purchase program) shares. I also set aside money for short-term savings and sweep it into my brokerage account periodically. At this point, I am considering diversification, and further Foolish investment. I figure the interest rate is low enough, I make fairly large payments and still have enough to save plenty. Is there anything wrong with this assessment? I know the numbers game with credit card interest. I NEVER pay minimums, and I'm "comfortable" dealing with this debt (it was planned) rather methodically.

Advice appreciated!


Chris, if you feel comfortable with just paying off the debt over the course of the next three months, and you are not over your head or in a bad cash flow situation, I think that your approach of stretching it out a little longer instead of liquidating your stocks is probably OK.

The one thing that I would make VERY sure you do is carefully inspect your overall portfolio and make sure you are not too heavily weighted in your company stock. ESPPs are very attractive, since they generally allow you to buy the company stock at a discount. However, it is easy to get loaded upon that company stock, especially if you have a 401k match that is also in company stock. Having both your paycheck AND a huge chunk of your portfolio all dependent upon one company comes dangerously close to having all your eggs in one basket.

I am personally not buying my company's stock via ESPP at this time. It was kind of a tough decision because my company is the leader in its industry and is doing pretty well. However, the vested company stock I have amounts to about 11% of my current net worth--and I'm only 40% vested. If I was fully vested, it would be even more.

A lot of Enron employees were wiped out, as I'm sure most folks here have said on the media. The ones who are worst off, and feel the furthest, are the folks who had almost all their retirement assets in Enron stock. Something to think about.

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Author: chriszap One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169076 of 308881
Subject: Re: $5000 at 4.9% Date: 9/4/2003 11:02 PM
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Thanks for the sage advice, everyone!

I think it's probably best to start doubling the amount I'm paying now. This will be easy, and relatively painless, as I'll just set up a recurring payment to come out of my account every other friday. I want this debt gone.

Debt does tend to keep me awake at night. I hate the idea of oweing anything. I was in rather deep at one point, to the tune of $20000. My interest rates were never as insane as some of the predatory ones I've seen folks stuck with. I've always managed to maintain good enough credit to warrant low rates. But 10% on 20000 adds up to a lot of money. Luckily for me a (wealthy) friend agreed to draw up a promissory note and make a formal loan to me to help me get out of the credit card mess. At 8% interest, amortized, it was a much better deal. I knew that the debt would be completely paid off in 48 months, period.

I'm 25 years old. When I look back at how much money I've made this past two years working in IT in Silicon Valley (still employed by the same company) I shudder at how wasteful I was. I also realize that couldas, wouldas and shouldas are useless in hindsight. The best I can do is learn from my mistakes.
I'm behaving like such a Fool now though. Leveraging credit card use to get airline points, and paying balances off in their entirety.

I would rather diversify my portfolio from what I have in ESPP than cash out and pay everything off. I'm nervous about having all of my eggs in one basket. I think I'll hold for a bit, but a trailing stop order is not far off. I should probably place it soon. I have a decent cushion in that 10000 and I want it in the market for the long term. Since it's already there, I see no reason to move it. It sounds like everyone agrees. So I'm on the right track!

It's nice to be surrounded by such level-headed and grounded people when it comes to managing personal finances!

Thanks,
-chris

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Author: Catleen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169091 of 308881
Subject: Re: $5000 at 4.9% Date: 9/5/2003 10:04 AM
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Chris:

Please do start your diversify your stock portfolio. Just remember all those people that bought ENRON stock and look at what happened.

If it were me I would pay off the cc debt, and my question would have to be what are the interest rates. Why don't you start paying more of it off as well as saving for the future.

The problem with being comfortable in dealing with your debt this way is that it can get out of hand and end up being $20,000 worth of debt.

Just my opinion.

Catleen

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Author: chriszap One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169103 of 308881
Subject: Re: $5000 at 4.9% Date: 9/5/2003 1:51 PM
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I don't carry other credit card debt. This is the only one! The 4.9% rate is good until June of next year. I've adjusted my payment amounts so that it will be paid off completely within three months.

So the normal interest rate on this card is LIBOR + 1.9%. This is one of Fleet's preferred rates which amounts to a 9.99% variable rate.

The story of this interest rate is interesting in that Fleet went from fixed rates to variable rates in the middle of the interest rate reductions that have occurred over the last two years. I find it difficult to believe that this was strictly for the good of the customer.


I have two credit cards and on charge card: Citibank, Fleet, (credit) and AMEX. (charge) My favorite by far is the AMEX card, because you have to pay in full every month. But not really. See AMEX has sort of jumped onto the revolving credit bandwagon, and I'm not talking about their Blue card. I have the standard American Express green card, which I've had for a few years now. At one point, they added a service to my account which allows various charges, any ones I ask them to really, to be paid over time just like a Visa or MC account. While convenient, this sort of negates what I deem to be an important feature and restriction of the card, that being that you are required to pay the balance in full at the end of every month. The interest rate AMEX charges is not so bad, 12.74%.

I do not leave balancees on this card, EVER, because I have much better rates on my other cards: Fleet 9.99%, Citibank 9.99%.
I should probably get rid of one of these two cards. It is important to note that I carry ONLY the AMEX card, my citibank card, and my debit card in my wallet.

There is a good argument against closing any established credit account, in that the longer you have open credit accounts in good standing the better it looks. If you've got 5 cards, by all means get rid of as many as you can, especially if you're tempted to go hog-wild with some consumer therapy, or if you're given to using them a lot.
I like the Foolish approach to credit a lot. I can't tell you what a weight it was off my shoulders when I eliminated my credit card debt and inched my way from the red into the black.

I'll NEVER use credit like a fool (small f) again. Of course, I did learn a lot about the industry. It was an expensive endeavor!

Cheers,
-chris

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Author: blackmare Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169132 of 308881
Subject: Re: $5000 at 4.9% Date: 9/5/2003 10:41 PM
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Hey Chris,

Welcome. :-) I've nothing else to add that hasn't already been said.



Mare.

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Author: chriszap One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 169144 of 308881
Subject: Re: $5000 at 4.9% Date: 9/6/2003 1:15 AM
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so I goofed on the rate calculation, I was tired when I wrote earlier. :) The spread is LIBOR + 8.56. thus currently amounts to a 9.88 APR. Even better than I'd originally calculated. So that's the Fleet card.

I confused the calculation of the rate for the Fleet card with that of the citibank card, which is PRIME + 4.99. (It used to be PRIME + 1.99. They took that away right quick when they raised my credit limit from $13000 to $22000.)

Thanks again for the welcome, Mare and others! I'm happy to be among you.

-chris

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