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Advice requested, fellow Fools.

My MBNA cc (balance $8100) is at a 0% rate that expires on 2/8/06. Then it goes to an 11.9% variable rate, and will be the highest rate card I have. Per the snowball calculator, it is my #1 priority for payoff even now, while still at 0%. I've managed to whittle it down from a high of about $17000. It's due to be paid off completely in May 2006.

I currently have $9200 in an ING fund, $6650 of which is earmarked for known periodic expenses (tuition, loan repayments, auto insurance premiums); the rest is for auto ins. deductibles ($2000) and emergencies ($550).

I am tempted to take $5650 from my ING account and pay off the whole MBNA balance before it starts accruing interest. (February's snowball will include $2450 to the MBNA card, and 2450+5650=8100.)

However, that will put me behind track to pay my periodic expenses, and I'll need to up my monthly ING transfer by at least $620/month for the next 5 months to recoup in time to pay my periodic bills at their due dates ($1130/month if I also want to recoup my deductible/emergency money).

What do you guys think I should do? Paying MBNA off before they get any interest would feel good, and I estimate I'd save $500. But the trade-off would be less financial security in the short-term, and I don't know how/if I'd come up with the extra money to repay my ING fund.

Actually, I sort of do - I'd take it from the end of month "leftover" that usually goes to the cc's or to pad the next month's budget. Trying to figure out the opportunity cost associated with that makes my head spin, though (and makes me really anxious about coming up short), so I'll stop there.

So, should I take the plunge and pay off the MBNA card in full, or just stay the course I'm on right now?

Thanks for reading this far,
FIgirl



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I would only because of my well-known and well-published animus towards MBNA.

Plus any day I can save $500 is a good day.

You're not left penniless in your ING account, and it sounds like you have a replenishment plan all thought out, so I don't see an issue either.

I vote "Go for it" but I guess the biggest issue is your tolerance of risk in your ING account.
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I forgot to mention that between now and April 15 I will also need to cough up $4000 for my Roth 2005 contribution. I didn't contribute this year because my income jumped mid-year and I thought I'd no longer be eligible. But, because my December income got credited for 2006 , my 2005 income came in under the Roth max.

So, $4000 has to come from somewhere also, and I haven't got a clue where that somewhere will be.

Thx,
FIgirl
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So, should I take the plunge and pay off the MBNA card in full, or just stay the course I'm on right now?

My first, off-the-cuff, no-other-response-has-been-read response is:

NOOOOOOOOOOOOOO.

My second response is;

no.

One of the things you are learning through this miserable process is Planning Ahead. You know that certain expenses will appear, and you'll have to scrape around and find the money. One of the happier financial events in my life was being able to save up and plan ahead for my car insurance.

http://boards.fool.com/Message.asp?mid=22367211

This gives you some idea of what is ahead when you pay off this debt. You'll be looking at a world where you don't have to hunt around in order to pay a bill.

If you tear apart your savings now, how far back will that put you in terms of your regular snowball? Will the other cards just get the minimum until you've saved up enough money to pay your other expenses? I don't recall your other minimums right now, but I'll assume that they aren't at the $20.00 level.

Do you have other cards that are open? Could you get a cheap balance transfer for one of them, and move the residue? If you got a good offer could you call MBNA, tell them you got a good offer, and can they match it?

I hate to watch you struggling to meet other expenses down the road a bit, simply to wipe out a single bill right now.

Nancy
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Greetings, FIgirl, of course my bias is to pay off MBNA before they charge you a cent of interest because I happen to be allergic to paying finance charges. And to owe $500 in finance charges if they were not paid off before the deadline - well, that money comes right out of your pocket. In fact, if you were able to fund your Roth, you'd really need to come up with $3500 because of the $500 you'd have SAVED by not allowing the balance to spill over into interest accrual. Plus, if you had not thought about this, I am not sure that your interest saved would be only $500 if you paid it off - your savings in fact might be even HIGHER (that is, you might end up owing even MORE than $500 if you don't pay it off) because of the reachback effect of having them go all the way to the beginning of the cycle before you made any payments to charge you interest on the highest balance you had with them, just because they can.

So think carefully about the true dangers of leaving that money unpaid in full by the deadline!

You say your snowball in February to MBNA is $2450. What happens then to that $2450 in future months? Where is it designated to go? Can it go towards building your ING back up and building up what you will need for your Roth, then topping off your credit card repayment snowball with it (as you may have planned to do) after April, say? I see no harm in having a low water mark in your savings accounts if the balances have been reduced to pay off a bill you will no longer owe ANYTHING on and when the income coming in will be divertable towards paying against ALL goals you have (both savings and debt repayment), ALL of which serve to increase your net worth. Already you have a total of $4900 between March and April from your snowball alone that you WOULDN'T be owing any more to MBNA, so you'd be well on your way to funding your Roth (and this is your only opportunity for 2005) and replenishing your ING account.

Just food for thought. But remember that I hate owing interest and forbid myself to do so, especially if I still have a sufficient income stream to be sure that I can replenish the coffers over time.

xraymd
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Nancy, you make a lot of good points. To answer your questions:

If you tear apart your savings now, how far back will that put you in terms of your regular snowball?

It shouldn't put me back on the regular snowball - mostly because my regular snowball is a little on the small side. It will definitely reduce the "extra" that I usually throw at the cards at end of month, since that's leftover money which I won't have if I need to up my ING transfers.

Of course, this whole plan is predicated on nothing going wrong. If an unexpected expense comes up, I won't have any cushion and I'll have to reduce my snowball.

Will the other cards just get the minimum until you've saved up enough money to pay your other expenses?

Well, if I knock out the MBNA card, the Fidelity card (actually this is also an MBNA card, so I won't be MBNA-free, rah) will then be the snowball priority, and will get more than the minimum. The other two cards will still just get the minimum.

I don't recall your other minimums right now, but I'll assume that they aren't at the $20.00 level.

Right now, the other minimums are:
Fidelity/MBNA: $315
AmEx Blue: $135
Citi: $42

Do you have other cards that are open? Could you get a cheap balance transfer for one of them, and move the residue?

I do have other cards, but I am loathe to start moving balances again. I did that for a few years before I got serious about debt repayment, so in my mind I associate it with backsliding. Plus, I'm afraid I'll be turned down - I recently got rejected for a CapOne card, probably because I've done so much balance transferring that my credit report is 15 pages long. It's an effort to make the requests, and I don't know if I'm up to making the effort or bearing the rejection (or taking the FICO hit). Yeesh, I sound like a coward. But I don't feel very tough or courageous right now.

If you got a good offer could you call MBNA, tell them you got a good offer, and can they match it?

See above, I guess. Also, they gave me 0% for close to a year on this debt - I doubt they will want to sweeten that deal any further.

The more I think about it, the more I am inclined to take your advice and stay the course. Having the security and sense of well-being/grown-upness that comes with my periodic expense fund is worth too much to me, I think.

Plus, if I'm going to fund my Roth by April 15 that's going to be enough of a challenge.

Still would love others' input, though.

FIgirl
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You say your snowball in February to MBNA is $2450. What happens then to that $2450 in future months? Where is it designated to go? Can it go towards building your ING back up and building up what you will need for your Roth, then topping off your credit card repayment snowball with it (as you may have planned to do) after April, say?

Hi Xray, I actually hadn't thought of it that way. I planned on keeping the snowball level the same and throwing the $2450 at the next card (which is at 8.9%), not using it to replenish my ING or pay for my Roth.

Interesting idea! I'd still have a period of low acccount balance insecurity, but it would be a lot shorter. But would I end up paying more interest that way, since I'd slow down the cc snowball temporarily?

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Interesting idea! I'd still have a period of low acccount balance insecurity, but it would be a lot shorter. But would I end up paying more interest that way, since I'd slow down the cc snowball temporarily?

Greetings, FIgirl, I don't know all of your interest rates but I would have to believe that even with slowing down the cc snowball temporarily, you would most likely end up paying LESS interest by doing this than if you let your MBNA balance start accruing interest at 11.9% when you could instead have paid the whole thing off before it turns into a pumpkin! Plus you meet your other major goal of funding your Roth for 2005. This is all part of a coherent money management strategy where you look at ALL of your goals for your money and then apportion your payments according to what best meets ALL your goals in the fastest, least costly way possible.

The major savings of not owing interest on any of the MBNA balance, plus the fact that the Roth contribution will be itself earning interest may go quite some ways towards offsetting how much more in interest you accrue on the cards not paid back as rapidly due to the brief diversion of your snowball. But then you end up with a fully paid off MBNA! And a Roth contribution for 2005! And with an empty MBNA, you may indeed get a nice new low-or-0% balance transfer offer which then lowers your overall interest rates owed even more - I know you were feeling shy about doing more balance transfers but you are now on top of your payback and it might start to feel much safer. Further, this might inspire you to see that tightening up on your expenses in favor of speeding up your debt repayment might not feel like such a steep sacrifice, after all. So you might be right side up again even quicker than you'd imagined.

I know Windowseat takes a very cautious view of paying off large chunks of debt in favor of hanging on to savings - and her view is very understandable since, for a nervewracking duration, she was not working. But you have a steady job that you are not likely to lose in the next 2 months (when you'd be making great strides at refilling your savings), so your considerations may be able to be different. Ultimately, you must do what lets you sleep best at night but I offer this other perspective to say that sometimes being so tightly focused on achieving one financial goal could make the simultaneous achievement of other financial goals less possible. And averting interest on a still-large MBNA balance, plus funding a Roth for which there is a hard deadline, both seem like reasonable financial goals even if for a short period your ING savings dip lower than you would prefer.

xraymd

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I agree with xraymd. If your snowball is 2300 a month and you're planning on paying off the MBNA card by May, then I'd pay out of the Ing account and then put the money that would have gone to MBNA to Ing for the same time frame. You're just changing who you're paying after all. And it appears you don't actually need the money in the Ing account until a few months later which gives you a little leeway.

However, if your snowball is variable depending on the month's expenses (ie. what you have left over comes to 2300 this month but might not next month) then I wouldn't do this.

Also I'm not sure that this method really pays the Roth, really it just recharges the Ing account for the expected expenses. However, it is worth considering taking away another 2 months of snowball (if it's 2300) in order to fund the Roth as well. This puts you a little closer to the line for the other expenses coming up though. To me this is more of a comfort level - would you rather fund the Roth or pay off the credit cards? Also it's possible to partially fund the Roth, so you could decide your comfort level (maybe you're only willing to take 1 month of snowball) and only fund to that amount.

Lael
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I hate to watch you struggling to meet other expenses down the road a bit, simply to wipe out a single bill right now.

I'm with Nancy.

Financially, when you get down to it, yes, you'd save a little money by using your ING to pay off the CC debt once the rate increases.

But that said, you'd be raiding a very important emergency fund that allows you to sleep at night knowing that there's cash available should the unexpected happen. It's a good feeling.

Now, the Fool in me would argue my own point by saying, "True, but if there were an emergency, you could fall back on that card."

But then, there's another part of me (non-Foolish? more Foolish?) that argues that point by saying, "Yes, but the idea is to not just pay off the card, but to avoid using it at any cost."

Ahhh, such a quandry.

Here's the solution:

Whether you agree with Nancy and my way or not, that's not the issue. The issue is what you answer yourself when it comes down to how comfortable you'll be with the decision you choose. Is having that balance making you nuts, or will it drive you even more mad depleting that account you worked so hard to build up in the ING account? Whichever you feel better with, that's the answer.

I look forward to hearing which way you choose. Good luck!

Tony
...but I still am...

Off2Aruba
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Hey everybody, thanks for all your replies!

Lael, to answer your question, my snowball is fixed at a minimum of $2000/month. This is independent of the leftover $$ at the end of the month.
I have temporarily reduced my 403b contribution in order to throw an additional $600 at the snowball, so until/unless I up the 403b again, the fixed snowball minimum is $2600.
To top it off, my Sallie Mae loan is in disaster forebearance (because I live in a hurricane-hit state) until March, so for the next two months my loan payment is going to the snowball as well, for a total of $2950.
But unless I get disabled or something truly awful, the snowball will not go below $2000.

From everyone's replies, I am getting the sense that this is not a pure numbers question but a "what makes me able to sleep at night" question. I think I'll sleep better at night if I have a more concrete plan, so I'm going to do some more math and try to forecast what exactly it would take to accelerate the cc paydown while also building the ING fund and funding the Roth. I don't think I can really do all three - although I bet Xray could make it work! - but if I can come up with a solid plan to do 1 or 2 things without a lot of economic risk-taking, I will.

Thanks again Fools! I feel so lucky that I have such a great resource in this board. I'll keep you posted.

FIgirl






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I do like xraymd's plan, and I'm wondering if there's a way to achieve balance between your three goals--pay down the MBNA that's about to balloon, save for your Roth, and save for your known periodic expenses--tuition, loan repayments, etc. I actually love doing this sort of calculation, I don't know why, I just do. I'll sit and make a spreadsheet, and title the columns Roth, MBNA and Known Expenses, oh, and you need one for the credit card minimums total, and put the current balances, and project out the next three or six months paychecks, and see if I can do everything, or how much of whatever I can do. (I am picturing the whole board backing up with their hands in that universal "Calm down, wild grizzly bear/person holding the diaper genie/spreadsheet nerd" position, while scoping out the quickest exit from the room.)

Anyway, if you do something like this, and leave a blank column at the left, you can try out different scenarios to distribute your minimum snowball to see what plan you like best. Take that minimum $2K snowball, subtract out what you owe on the minimums to the other CCs every month, and see if you can replenish your Known Expenses with $5650 before they are due. (If you feel truly anal, and you know when the known expenses are going to happen, you can schedule them in there, too.) What if you have the additional $950 or so for two months (I'm remembering your numbers, so they might be off, but it was the 403(b) and the disaster something or other, that extra), can you do it then? I think you said something about needing $650 or so a month to repay the $5650--could it come out of your snowball? And what about the Roth?

Also, do you have any good BT offers? It may feel like backsliding, but you have your finances under control now--it's not. BT the MBNA, and you can concentrate on the Roth, and leave your known expenses fund intact. You can aim the snowball temporarily at rebuilding your known expenses fund if you raid it for either the Roth or the MBNA.

Anyway, just sit and play with some numbers. Aim the snowball at different stuff and see what happens. Use all your resources--not just the known expense fund at ING, but your balance transfers on other cards. I'd rather see you BT the MBNA than use your ING money--that's your sleep-at-night money, you know? For me personally that would be a bigger "backslide" than using BTs for good and not for evil. :-) It's good to remember we can snowball things besides our CCs, we can aim it at savings or Roths or something else temporarily, if it's a high enough priority for you personally.

At the end of the day, it's whatever you're most comfortable with. And if you can get a good plan that relies on you cutting $100 a month from your budget and throwing it extra at your snowball, then it might even motivate you (as another person said on the thread) to be even more committed to paying down debt.

Good luck! Sorry to drone on so long. :-)


--Booa
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I actually love doing this sort of calculation, I don't know why, I just do. I'll sit and make a spreadsheet, and title the columns Roth, MBNA and Known Expenses, oh, and you need one for the credit card minimums total, and put the current balances, and project out the next three or six months paychecks, and see if I can do everything, or how much of whatever I can do. (I am picturing the whole board backing up with their hands in that universal "Calm down, wild grizzly bear/person holding the diaper genie/spreadsheet nerd" position, while scoping out the quickest exit from the room.)

Greetings, Booa, have I told you lately that I love you?

xraymd
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Greetings, Booa, have I told you lately that I love you?

xraymd


Right back atcha with hot fudge sauce on top. :-) I'm certain I don't tell you enough. :-)


--Booa
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