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I need some sound advice on how to begin a credit card debt elimination plan for myself. I decided to
set a goal for myself of 24 - 36 months. Then I divided the current balance(s) by 36. My question is this: should I have included the current interest rate
in this formula? In other words, once I determinded the monthly rate of 36 equal payments, should I have
multiplied that by the current percentage rate? Would
this accelerate the payment of the principal or is this
unrealistic? Although it would be tight for the first few months, I am willing to stick with this until I see the mountain of debt disappear. Does anyone have a better solution?
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<<Although it would be tight for the first few months, I am willing to stick with this until I see the mountain of debt disappear. Does anyone have a better solution?>>

Here is my solution to get out of my CC debt (still working on it, but in the home stretch):

First, sort all of your credit cards by interest rate. For example: 1-19.8%, 2-18.9%, 3-17.9%, etc. If two cards have the same rate, rank the one with the larger balance first. For example: 1-\$5000, 19.8%, 2-\$2000, 19.8%, etc.

Second, Make the minimum payments on all of your cards except for card #1. But don't fall into the CC trap of paying a lower payment each month; keep it constant. Then pay as much as you can afford onto card #1; this is your most expensive card, so you want to pay if off first. So using the 3 cards in my first example in step 1, it might look like this: 1-19.8%, pay \$500, 2-18.9%, pay \$100, 3-17.9%, pay \$75.

Third, When card #1 is paid off, take the monthly payment and add it to card #2. The two remaining cards would look like this: 1-paid, 2-18.9%, pay \$600, 3-17.9%, pay \$75.

Fourth, keep doing this until all of your cards are paid off.

This is probably the quickest way to do this. I am in a situation right now where I am sending \$1500 a month to one card. Needless to say, that \$6000 balance will be gone soon! (Thank goodness!) Then I can add the \$1500 to the \$200 on my other card and be gone with it by the end of the year. THEN I WILL BE CC DEBT FREE!!! YIPEE!!

Good luck! I've been fighting mine for 10 years and just started getting a handle on them in the last 3 years, so I know what you are going through.

David (But I'm not) Boring

P.S. Just imagine what that \$1700 a month could do with stocks if it weren't going towards CC. Even more sickening, it is just about my wife's take-home pay each month, so guess how she feels about that. ;)
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David
You have a fine plan but unless there is a very large difference in interest rates, I would recommend that you pay the smallest balance first and work up the line that way. By doing this, you are closing accounts sooner and doubling up sooner. If there are two balances that are close, then take the higher apr. Good fortune to you.
Stan
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<<I need some sound advice on how to begin a credit card debt elimination plan for myself. I decided to set a goal for myself of 24 - 36 months. Then I divided the current balance(s) by 36. My question is this: should I have included the current interest rate in this formula? In other words, once I determinded the monthly rate of 36 equal payments, should I have multiplied that by the current percentage rate? Would this accelerate the payment of the principal or is this unrealistic? Although it would be tight for the first few months, I am willing to stick with this until I see the mountain of debt disappear. Does anyone have a better solution?>>

This isn't exactly the answer you were asking for, and several things may not apply to you, but others may find useful.

The Motley Fool has a credit/Debt area it is located at http://www.fool.com/credit/credit.htm .

A good book on this:
How to Get Out of Debt, Stay Out of Debt and Live Prosperously -- Jerrold Mundis
You can find this at amazon.com or your local library.

Useful software.
Quicken http://www.intuit.com/
Debt Analyzer http://www.debtanalyzer.com/

A definition so we can agree on what we are talking about. A debt is any unsecured loan. If a creditor would lose money if you didn't pay it is a debt. A mortgage is not a debt since if you didn't pay, the creditor takes your house and doesn't stand to lose money. A credit card is obviously debt, past due utility bills are also debts.

As you are paying everyone back you may have to talk to the various creditors. Don't lie to your creditors. No matter how much they insist/whine about what you must do, DON'T promise anything you can't deliver. If you say you will drop a check off Thursday come hell or high water make sure they have the check Thursday.

Now a plan of attack. This is my adaptation of the previously mentioned book.

Step 1: Don't make things worse. Quite simply don't get any more debt. Don't use a credit card.

Step 2: Make a list of all your creditors, minimum payment, monthly interest, interest rate, and amount owed.

Step 3: If you don't have an emergency fund pay something to yourself in some form of savings (savings account, money market, EE bonds, ...). You will need this fund so that when the refrigerator dies it can be replaced without going into more debt (see step 1).

Step 4: Try to make AT LEAST the minimum payment to all creditors. If there isn't a minimum payment (the loan from your brother) pay some monthly payment. If you have more than the minimum paymanets that can be used to retire debt, send it to the creditor with the highest interest rate (or the most annoying creditor). If you don't have enough for the minimum payments try to at least cover the monthly interest and penalties, and talk to the creditor.

Step 5: Keep track of everything. A journal page for each creditor is a good idea. You will know exactly what you promised, and you can keep track of the balance of the account and see it going down. Keep track of every account you liquidate, positive reinforcement is always nice.

Step 6: As you retire debts use the money you were paying to them to pay off the next highest rate debt.

Things I have left out of this is keeping track of where your money goes (I already knew). And makeing a spending plan (budget) (I already had a rough one). The budget I use is a mixture of products, product classes, and stores. For example I plan on spending \$60 on gas, and \$200 at Sam's club. Notice that I didn't specify that \$20 of the Sam's trip was for laundry producets.

Does this work:
It's working for me. I haven't used a credit card in two years, and have liquidated several debts. It's hard to say when I will be debt free, but it looks like three to four years. For the first time my wife and I are going in the same direction.

~~paul
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JJ Dyson,

Congratulations on taking the first steps to living debt Free. This is a great place to learn from ppl's past experiences of what works and what does not work, as well as share in yours. I highly recommend reading the past posts here at your leasure when you have time, they are full of helpful hints.

I am a little concerned about your approach. 24 to 36 months is a great goal to set for yourself but unfortuantely you cannot just take the sum of all your individual balances and divide by 36. Your right in your intuition about forgeting the intrest. You have to factor that in or you'll never get yourself out of debt. This is where the credit card companies make a killing off of ppl like you and I :(.

The basic formulas (this will give you a good rough Approximation of the intrest)

(((APR/100)/12)*Current Balance) + Current Balance

From there you would have to add any new charges for the month and deduct any payments made. This formula would be repeated each month. I have a pretty good
spread sheet that does this and is set up for 1998/1999 years, just email me if your interested in them and have excel.

The first thing I would recommend is organizing not just your debts but all your accounts and begin tracking all your fincances. I have been doing this now since the new year. Its an eye opener the first month. Even down to tracking the quarters for our littles ones gum balls and pennies in the fountain. I would recommend either MS Money'98 or Quicken '98. Sad to say, but I have heard MS Money is a little better section for debt reduction then quicken and both do about the same for tracking expenses and generating reports.

I have even posted a monthly debt chart on our fridge as a reminder. So far It looks good, Debt level always going down each month. Good Positive Reinforcement is important!!!

Another aspect that some ppl have touched on was to add up all your minimum Payments and add a little to one or two of the cards. Think of that amount as one Big payment per month and never deviate from that, unless you add to it of course. As debts are retired just add more to the remaining debts and your'll be out of debt that much faster.

Any monetary gift, bonus, or tax refund.. Any extra money you get, atleast use a majority of it to retire your debt faster. Every little bit counts.

Those are just a few ideas. It may seem daunting, but there is light at the end of the tunnel. Good luck and keep us all posted on how your doing.

Rob
Bottles

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Dear Rob,

Thank you for your response. I am very interested in
obtaining a copy of your spreadsheet. My email address is JJDyson@aol.com. I could use any tool that will help me get started and stick with it. I appreciate your generosity and will let you know my progress. JJDyson
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<<I decided to
set a goal for myself of 24 - 36 months. Then I divided the current balance(s) by 36. My question is this: should I have included the current interest rate
in this formula? >>

If you include the interest, you may find it will take you a lot longer to pay back the debt. The formula is somewhat long, but here it is:

Principal /[1/i- 1/(i*(1+i)^36)] = Payment

i = interest rate/12

If the math is a bit scary, you can use Quicken or an amortization table that your bank can give you to calculate what you need to pay. What makes the math so complex is the interest is accruing on the balance, which declines each period (or hopefully does).

Hope I helped clarify things,
George
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Bottles,

In your post you mentioned a spread sheet you have which helps you in this endeavor. I'm digging my way out now and this could be invaluable. If you could forward me a copy, I would greatly appreaciate it. My e-mail is:

dave_leonard@usa.net

Thanks a (future) million.

Rogue31