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Author: chrisdotcom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308519  
Subject: our debt - any suggestions? Date: 7/31/2002 12:46 AM
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As suggested to other users by many people on these boards, I am posting our debt in hopes of acquiring advice.

People's Bank.....$9,355.....27.99%
Fleet.....$3,239.....23.94%
Associated Bank.....$2,818.....29.74%/19.74%
Sears.....$1,344.....21.9%
Capital One.....$400.....19%
First National Bank.....$1,600.....19.8%
MBNA.....$15,693.....12.99%
Discover.....$2,521.....9.99%
Citibank.....$3,944.....5.9/7.9/14.15


Car Loan.....$15,000.....11.5% ($347 payments)
Student Loans.....$23,000.....4%
No mortgage

We are age 24 and 25, recently married (not even a month!) and have a combined income of $100,000. We have never made a late payment on any credit card.

We were approved for a $20,000 unsecured loan through our credit union. I would like to pay off each card, starting at the top of my list (highest APR) and working down. This would leave us with balances on the MBNA card, the Discover card and the Citibank card, which I would in turn "snowball" (I think I used that term correctly!)

Although we haven't used the credit cards in two years (except for $3,000 for our honeymoon), paying minimum payments caused the balances to increase rather than decrease.

I created a household budget this week and while I'm still tweaking it, it's been a great tool so far. A huge problem was that we ate out at restaurants 4-5 times per week, averaging $35-50 per meal. I also ate out for lunch a lot with my friends. Starting three weeks ago, I began planning meals ahead of time (including planning a night out at restaurant that costs about $15 for the two of us) and I have been cooking dinner at home and my husband has started to make our lunches for work. I would still like to have lunch with my girlfriends once per week if possible.

We have switched to basic cable, eliminated one cell phone and lowering the plan on the second phone, and started using Tivo to tape movies instead of renting/going to see them (we rent and go to the movies a LOT). The $12/month for Tivo is much less than what we spent on movies and rental fees.

After living expenses (rent, car payments, insurance payments, all utlities, efund payments, groceries, etc) and debt payments (consolodation loan payment, student loan payments, etc), we have $2,000 extra to put towards the balances on the three remaining cards. Keep in mind that this is based on the budget I created this week and hasn't yet been put to the test.

So, there's our situation, as embarrassing as it is. Any comments/suggestions?
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Author: gebinr Big gold star, 5000 posts Top Recommended Fools Old School Fool Supernova Phoenix 1
Mission Team Member CAPS All Star SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135058 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 1:47 AM
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Sounds like you're on the ball. Try your budget out for a couple of months and tweak it some more until it is comfortable. A budget is a tool, not a straight jacket.

Your situation is not so embarassing. A bit over $40K (not counting car and student loans), but we have all seen worse and better. There is a whole range of people and debts here.

Your plan sounds good and well thought out. Keep to it, snowball, and before you realize it, that balance will be down to $35K, $30K, $25K . . . $0.

One thing to figure in is the minimum to each card to keep those balances from increasing. This sounds, from what you wrote, like it will be more than the minimum the CC company lists.

When you need support, come here and read and post. Lots of inspirational posts and general all round support.

When you reach a milestone, post a Happy Dance and let all share in your accomplishment.

And by all means, keep us informed of your progress.

gebin

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Author: Booa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135063 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 2:13 AM
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Hey, don't be embarassed. If you can't count on complete strangers on the Internet for support, who can you count on? ;-)

Seriously, I think you're making some excellent first steps. Whatever the rate is on your consolidation loan, it has to be better than what's on the cards you're going to pay off with it, so that sounds good. What will the payments be on the consolidation loan, and what's the term? I hope that your budget works out, and we will give lots of support on this board (for reals).

I would just mention additionally, that www.onesuite.com is a great place to get 2.9 cents/minute long distance. We got rid of long distance altogether on our phone, and use OneSuite. They rock!

As long as you and your DH are both on board, I think it will go great! Good luck and keep us posted.


--Booa

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Author: allienic98 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135076 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 6:59 AM
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It sounds like you have a good handle on things!

I'm not sure what the interest rate on the Consolidation Loan is...but if it is a decent rate, I would say to "go for it!" When I add the figures up, it look like you will have about $1200 left of the loan amount, I would put that on the Discover and cut it in half. In the first month, I would pay minimums on MBNA and Citibank and see if you can kill the rest of Discover. Then I'd pay the Citibank and save the MBNA for last since it is the largest.

After you pay off the cards using the Consolidation Loan...I would CLOSE those accounts! Every last stinking one of them. I would keep either the Discover or the Citibank (I like Citibank) for future credit card needs (example...charging emergency flights/car rental)...but I would still not use them, or if you do, only charge what can be paid off every month.

I'm not sure how much you are putting into your efund, but you might want to think about increasing it a little. I am assuming that you are putting approx $100 per month into one. I say I would increase it because car repairs can sometimes be very costly.

Keep up the good work!

allienic98



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Author: chrisdotcom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135082 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 8:52 AM
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You guys are awesome! I had a dream last night that a whole bunch of people showed up at my front door wearing the Motley Fool hats and made me sell my car. :)

The consolodation loan is at 11.5% (the average unsecured bank loan in Wisconsin is 12.5% right now) for five years.

I have $100/month budgeted for the efund. I can double that. Does that sound about right?

Another question. With all this debt, is it too soon to have a vacation and furniture fund? I'm talking $20/month for vacation (we don't anything extravagant - a trip to a B&B would be fine) and $15/month for furniture (our coach has stuffing coming out of it).

Thanks!

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Author: Fallout2Queen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135087 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 9:48 AM
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So, there's our situation, as embarrassing as it is. Any comments/suggestions?

Since you said you've never bene late with a payment, call the credit card companies and ask for lower interest rates ASAP.




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Author: chrisdotcom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135092 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 10:24 AM
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Since you said you've never bene late with a payment, call the credit card companies and ask for lower interest rates ASAP.

We called each and every credit card company requesting a smaller APR. All but two gave us great deals (Discover lowered the APR from 19.95 to 9.99; MBNA lowered the APR from 17.99 to 12.99; the others lowered the APRs a point or two). People's Bank (27.99) and Fleet (23.94) both declined our requests due to the high balances on the other cards.

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Author: Fallout2Queen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135096 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 10:47 AM
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Since you said you've never bene late with a payment, call the credit card companies and ask for lower interest rates ASAP.

We called each and every credit card company requesting a smaller APR. All but two gave us great deals (Discover lowered the APR from 19.95 to 9.99; MBNA lowered the APR from 17.99 to 12.99; the others lowered the APRs a point or two). People's Bank (27.99) and Fleet (23.94) both declined our requests due to the high balances on the other cards.


Call Discover again and ask them about getting a special balance transfer rate. Talk to them and tell them that you have balances at other places, and you're wondering what they (Discover) can do for you. Maybe you could transfer the balances from over 20% to Discover at a lower rate.



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Author: tenworlds Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135098 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 10:51 AM
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chrisdotcom Date: 7/31/02 12:46 AM Number: 135055

Although we haven't used the credit cards in two years (except for $3,000 for our honeymoon), paying minimum payments caused the balances to increase rather than decrease.
-----------------------------------

Bears repeating!

I copied this to give to my son, who (just starting out) wants to "establish his credit" by charging stuff and paying the minimums for awhile to show good payment history.

He's young(22), hard-headed, and though he does ask me about finances(!), he has some ideas he doesn't want to let go. (Raised by his mother, a credit card junkie)

Thanks~
Rich



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Author: chrisdotcom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135099 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 10:53 AM
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We are using a $20,000 consolodation loan to pay off the high interest cc's:

People's Bank.....$9,355.....27.99%
Fleet.....$3,239.....23.94%
Associated Bank.....$2,818.....29.74%/19.74%
Sears.....$1,344.....21.9%
Capital One.....$200.....19%
First National Bank.....$1,550.....19.8%

and about $1,500 on the MBNA card.

After the loan is disbursed, the only cards/balances left will be:

MBNA.....$13,000.....12.99%
Discover.....$2,521.....9.99%
Citibank.....$3,944.....5.9/7.9/14.15

(These balances do not reflect the payments we send at the 1st of the month)

I will ask my husband (the Discover card is in his name) to call and find out how much of the MBNA balance we can transfer to Discover.


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Author: chrisdotcom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135100 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 10:55 AM
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I copied this to give to my son, who (just starting out) wants to "establish his credit" by charging stuff and paying the minimums for awhile to show good payment history.

I wish someone would have shown something like this to my husband when he started college. While his parents don't know the details of our situation, they are aware that there is debt beyond college loans, and his mom feels so so so horrible about not teaching him better habits.

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Author: maureenkaplan Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135116 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 12:16 PM
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I have one thing to ask - you're recently married - you *did* adjust your tax withholding to reflect that, correct? You've been married all year, for tax purposes - and you make enough that the "marriage penalty" will probably apply. This can have SCARY effects on your budget. (Okay, it won't be scary with a $2000 snowball, but you want to take care of it now to avoid penalties come tax-time for underpayment.)

And no, given $2000 for a snowball, I don't think that $35 ($20 for vacation and $15 for furniture) per month for "wants" is excessive. ::grin:: Whether I'd double my efund savings or not would depend on the size of the efund and your comfort level; I'm good with 1 month's expenses in the bank ($1000 for me!), but that's entirely a personal call.

Maureen

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Author: ramsfanray Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135118 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 12:32 PM
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I would like to pay off each card, starting at the top of my list (highest APR) and working down.

------------------------------------------------------------------------

Attack balances. Start with your lowest one first. Let's say you have an extra $100 a month to apply towards any card. Your Capitol One card has a balance of $400. Assume for the sake of arguement you have a minium monthly payment of $20 on this card. So month one- you pay $120.
Balance is now 280. Month two Balance is now 160. Month 3-balance is now 40. Month 4 pay off card - use the other 80 on next lowest card. Month 5. Apply $120 to next lowest balance. That is your sears card. Assume minimum balance is $40. But you now have 120 extra a month to throw at it. So now you are paying $160 a month. For the first 4 months you paid a total of $160 on this card so your balance is less then than the $1344 you currently have listed but we will use it as a starting point. At $160 a month you can pay the Sears card down from 1344 in less than 9 months. And now you have $160 dollars to put towards the next card.

Chances are that someone else will tell you this is the wrong way to approach it and that I am stupid for suggesting it. I think this is the best way and you may take my suggestion for whatever it is worth.

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Author: NaggingFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135120 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 1:00 PM
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Maureen wrote:
but you want to take care of it now to avoid penalties come tax-time for underpayment.

While I second the recommendation that you should check your withholdings to make sure you're prepared for next April, I want to remind everyone about the "safe harbor" rules regarding tax underpayment.

Basically, if you pay as much in withholding this year (2002) as you owed in taxes last year (2001) you won't be penalized. So if your income is going up you'll be fine. If tax year 2001 was an unusual one for you then you might hit trouble. Lastly, it's never too late to adjust your withholdings for on-time payment. Depending on how quickly your payroll department makes adjustments, you could arrange to have a large sum withdrawn only in November and December, for example.

-Megan


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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135121 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 1:04 PM
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Chances are that someone else will tell you this is the wrong way to approach it and that I am stupid for suggesting it. I think this is the best way and you may take my suggestion for whatever it is worth.

There is no right or wrong but your suggestion is the costlier method and for anyone in debt or anyone, period, there's no time like the present to save money.

rad

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Author: chrisdotcom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135131 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 2:23 PM
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I have one thing to ask - you're recently married - you *did* adjust your tax withholding to reflect that, correct?

I don't think I understand. I changed my federal withholdings before our marriage - I was previously claiming "1" and I changed it to "0". My husband is still claiming "1". Should he change this to 0? Do you need more information - Salary/withholdings?

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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: 135133 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 2:25 PM
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Chances are that someone else will tell you this is the wrong way to approach it and that I am stupid for suggesting it. I think this is the best way and you may take my suggestion for whatever it is worth.

There is no right or wrong but your suggestion is the costlier method and for anyone in debt or anyone, period, there's no time like the present to save money.

The "costlier approach" aspect of paying down debts in order of smallest balance to largest balance is frequently given more credit than is truly due. You simply have to run the numbers to see which approach is going to be cheaper and by how much. I know when I ran the numbers last, it was just a few bucks difference (b/c my interest rates are all low) and there was no difference in # of months to pay off.

On advantage of paying lowest balance to highest is that when you clear off the first card or two very QUICKLY, they may offer you a low rate BT that you can leverage.

d


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Author: xraymd Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135136 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 2:35 PM
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The "costlier approach" aspect of paying down debts in order of smallest balance to largest balance is frequently given more credit than is truly due. You simply have to run the numbers to see which approach is going to be cheaper and by how much. I know when I ran the numbers last, it was just a few bucks difference (b/c my interest rates are all low) and there was no difference in # of months to pay off.

Greetings, dianakalt, this is why I love the snowball calculator. I have been in the pay-against-highest-interest camp but realize that for certain situations (like, as you say, when the candidate interest rates are all in the same ballpark), it may not be the ultimately best strategy and clearing a card quickly may make more sense.

So I second the advice to the original poster to run the numbers for yourself and make your best decision for your circumstances. Look in the yellow-topped box to the right of this post for a link to Dan's snowball calculator (requires Excel) - or maybe other posters can supply links to their favorite alternatives.

xraymd


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Author: Fallout2Queen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135138 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 2:36 PM
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Chances are that someone else will tell you this is the wrong way to approach it and that I am stupid for suggesting it. I think this is the best way and you may take my suggestion for whatever it is worth.

There is no right or wrong but your suggestion is the costlier method and for anyone in debt or anyone, period, there's no time like the present to save money.


Although more expensive, it might be worth doing it that way for some people if they need the psychological boost of completely paying off a card.


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Author: maureenkaplan Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135140 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 2:48 PM
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I don't think I understand. I changed my federal withholdings before our marriage - I was previously claiming "1" and I changed it to "0". My husband is still claiming "1". Should he change this to 0? Do you need more information - Salary/withholdings?

Well, I don't have the withholdings worksheets here; my ex and I both used "0" when we made [about what you and your husband do], with "withold as if single" and we were slightly over. Chances are, you're okay. I just wanted to make sure you'd been aware of it - it was a SHOCK to me (especially the "for the whole year" part!) ::grin::

Maureen

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Author: reverbbrad Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135141 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 2:55 PM
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Although more expensive, it might be worth doing it that way for some people if they need the psychological boost of completely paying off a card.

There may also be other practical considerations. Recently, I had a choice between paying off my remaining car loan (4.9 apy) or a portion of my credit card debt (at 7%).

I ended up going with the car loan because a) it freed up more cash than the same payment to my cc would have and b) in a worst case scenario, if I couldn't make my car payment, it is a lot easier for them to come take it than it would be for a credit card to come after me.

Both my wife and I have been laid off a couple times recently (we are in the tech field, and were with companies that died), so I tend to think 'worst-case' a little more than most. If I got laid off again, my bare minimum monthly expense was reduced substantially, and I could count on the car being there.

-Brad

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Author: allienic98 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 135237 of 308519
Subject: Re: our debt - any suggestions? Date: 7/31/2002 10:19 PM
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I am not sure what your credit limits are on the cards, but try to bt the ones who wouldn't give you a lower rate to those who would give you a lower rate. If you don't have much space on your lower rate cards, see if they will increase your credit limit.

If all else fails, just keep calling back to those with the higher rate...if they don't lower your rate today...they might in a few weeks or months. And make sure you snowball the higher rate cards first. This way, they will see you mean business!


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