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I only have one credit card left to pay off until I'll be BROKE (in the "improvement" sense of the term). Balance on this is 16,000, and interest rate is 23%.

I'm able to pay between 1200-2600 on this per month, but I'd rather this be done in 6 months, than a year!

What advice can you give about the following options:
a) Just bucking up and paying the dang thing off with no adjustments
b) Applying for a personal close-ended unsecured loan, and paying that off ASAP
c) Asking for a rate reduction (I talked with the bank yesterday. Without negotiation, they'd bring it down to 20%. Not much improvement.)
d) Trying to shift to other credit cards (I'd rather not do this, since I'm so close to being finished)

Thoughts?
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This:

b) Applying for a personal close-ended unsecured loan, and paying that off ASAP

IMHO, that's the way to go. If you have an account at a credit union, that's the place to get one of those loans. Mine credit union has been very helpful in this regard and what you save on interest will astound you.

MOI
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There's no reason to be scared of option d, IF you've changed your behavior with respect to credit cards.

Assuming a linear 12 month paydown, you're going to "spend" about $1600 on interest (figure 20% * $8k avg balance over the year).

If you have another card that throws you a 0% for 1 year offer, you'll probably pay a 3% BT fee ($480), and then have no interest for the rest of the year. That could legitimately save you $1100.

Weigh that against option b. A personal loan would probably be more in the ballpark of 10%. Assume a small fee to open, this might save you $7-800 over the course of the year. But that's only if you stick to your snowball and pay it off in that first year.

So there is a little more money to be saved if you can get a good credit card transfer offer. Plus, I think psychologically you may find yourself more likely to aggressively pay off the cc balance than you would a personal loan.

My 2¢
Jeff
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c) Asking for a rate reduction (I talked with the bank yesterday. Without negotiation, they'd bring it down to 20%. Not much improvement.)

So is the rate now at 20% instead of 23%? If not, why not?

As for the other options, I would suggest determining what the terms would be for you on options b and d. Do you have other credit cards that have balance transfer options for you? Is your credit score good enough that you can actually get a person unsecured loan at a reasonable rate? Once you can determine the terms on the other options, you can compare to see if there will be any savings, and if so, if those savings will be worth the hassle and any potential hits to your credit.

I'm able to pay between 1200-2600 on this per month

That's a pretty big range. At the 20% rate, paying $2600/month, you will have it paid off in 7 more payments. If you only pay $1200/month, it would take you 16 months.

So, where does the extra $1400 go in the months that you will only be able to pay $1200? Is there anything you can do to cut those expenses so that you can pay closer to $2600 all the time?

AJ
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Krisliss,

You wrote, What advice can you give about the following options:
a) Just bucking up and paying the dang thing off with no adjustments
b) Applying for a personal close-ended unsecured loan, and paying that off ASAP
c) Asking for a rate reduction (I talked with the bank yesterday. Without negotiation, they'd bring it down to 20%. Not much improvement.)
d) Trying to shift to other credit cards (I'd rather not do this, since I'm so close to being finished)
Read it.

It sounds like you may be past the most critical stage in debt pay-down - stopping the bleeding.

The second is to increase income and/or decrease spending. High interest rates are definitely part of that problem as they impact your total expenses in any given month. Given time available, you should be seeking ways to minimize interest expense.

Why Interest Rates Matter is the topic of a thread I started 12+ years ago on this board. http://boards.fool.com/why-interest-rates-matter-17699844.as...

I originally posted it because there were people on the board saying to ignore the rates and focus on other stuff. My post was designed to show exactly why a reduction of interest rate can matter so much and it does so by showing you in a very simple table how much more TIME a change in interest rate can cost (or save) you.

With that said, I have to ask you why your rate is currently 23% if you were offered 20%? You should accept ANY reduction in rate as long as it does not come with onerous conditions. Call them back and accept it now. That's something you can do today and it's guaranteed. Opening a personal loan at a bank or credit union is something you MAY NOT be able to do. The terms advertised by a bank or credit union are predicated on you having an excellent credit report. If the credit card company won't give you better than 20%, it's possible you won't get a better offer from your bank or CU. Shoot, they may not even be willing to take a risk of loaning you anything.

With that said, you should certainly try. You should do things in this order:

1. Take the credit card company's offer first. Any hard inquiry on your credit report (for a failed attempt at opening a new line of credit) could change the credit card company's decision, so you should do that immediately.

2. Explore balance transfer offers. These generally do not require a credit report hit either. If you have a BT offer in-hand, but its not enough for the entire balance, call the company and ask for a credit line increase. Even if it's not for the entire balance, consider what it might save you even if you can only transfer part of the balance.

3. Now explore new offers. Don't stop at banks and CUs. Look into new credit cards as well. Some may offer you special deals like 12 months or more at 0%. If you're only a year away from pay-off, these can be especially sweet.

You should also take care of your credit report. Make sure you know what's on it and that it's all legitimate. Know what will hit your credit report and affect lender's decisions. This will help you prioritize what things to look into first. If you haven't reviewed your credit report recently, do that before you move to step #2.

Also don't stop at doing one thing. All of these things are valid options. Just start at the top and work your way to better deals. When you get to the end, wait several months and call to try to negotiate again...

- Joel
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No. of Recommendations: 4
for six months, I'd choose c) grab the 3% reduction in interest and a) PAY it off

Motivate yourself to send money to the credit card company. You can send money more than once a month when they bill you. Maybe make the minimum payment automated.

Find the last three bills and make a chart of how much you paid in interest. (As you reduce the balance, the amount of interest will go down).

Think like a starving college student - can you find free food? take up a cost-free activity (set a walking goal for the next seven months OR play a musical instrument you own or can borrow for 40 minutes a day OR learn traveller's conversational Spanish or Mandarin or Croatian)? visit the library and park and waterside frequently? Write heartfelt cards to give instead of gifts for the holidays?
Spend just as little as you can in the next 10 months and see where you end up.
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Wow, thank you all for the great ideas! Since posting this, I've taken them up on the 19.99% interest rate, and - more importantly - started getting serious about my budget.

Assuming I stick to the budget (which will be easy, as I can be very disciplined when it's required), I can pay around 1800/month. However, over the course of the next few weeks, I'll be looking for ways to live below the budget, so I'll most likely have extra money to pay against this goal.

In 2009-2010, I was un/under employed, and managed to prevent my house from going into foreclosure due to discipline, hard work, and a whole lotta luck. I've been living a little looser since, then, but I think it's about time I tap into those skills again.

Appreciate the thoughts. Please comment again if you have other ideas. This isn't the most exciting goal to track progress against. Is there a way to turn debt repayment into a game that's more engaging than just making the payment every 2 weeks?
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Engaging ideas:

play some victorious music every time you see the payment hit the debt

create a dragon and shred it as you send in payments

When you authorize a payment, note how much is for fees and interest daydream about what you will spend that money on

Give yourself a gold star every month you pay more than $1775 towards debt (break it down to weeks, months)
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Is there a way to turn debt repayment into a game that's more engaging than just making the payment every 2 weeks?

Some people make paper chains. One link for every thousand, or hundred, or however they want to break it down. Every time the amount owed drops a thousand, they remove a link. Some people then use the link to start a new chain, of debt no longer owed.

Some people calculate the moment their finances have left the negative numbers and crossed into positive numbers. For a lot of people, that's a very intense and exciting moment.

There are all sorts of ways to celebrate various moments of success. And long ago we had someone who, once the debt was paid off, made a little sign saying something to the effect of: "This household has been out of debt for X number of days". Eventually he changed it to weeks, months, etc. That was a very helpful reminder to him about how much that debt had cost him in terms of peace of mind.

Nancy
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I have continued to work on this goal, and decided to post an update.

Opened a line of credit at 7.75%, and a new credit card with a 0% introductory rate on purchases. I transferred 14K into the line of credit, and have been "living off" of the credit card, putting all my income to payments against the line of credit.

Current balances:
Line of credit: $3,600
Credit card: $8,000

I haven't been able to pay these off as quickly as I'd like, and to be honest, I decided it was better to start maxing out my 401K and RothK contributions, which lowers the amount that I could pay.

On the plus side, I'll have $20,000+ coming in from back taxes, work bonus, and an inheritance settlement coming in over the next couple months that will (hopefully) wipe this out for good by April or May.
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I have continued to work on this goal, and decided to post an update.

Glad to see an update.

Opened a line of credit at 7.75%, and a new credit card with a 0% introductory rate on purchases. I transferred 14K into the line of credit, and have been "living off" of the credit card, putting all my income to payments against the line of credit.

Current balances:
Line of credit: $3,600
Credit card: $8,000

I haven't been able to pay these off as quickly as I'd like, and to be honest, I decided it was better to start maxing out my 401K and RothK contributions, which lowers the amount that I could pay.


So, just to be clear, about 3 1/2 months ago, you had $16k in debt and were saying that you could pay $1200 - $2600 each month toward the debt. When questioned about the wide range, you later said that you thought that you could pay down $1800/month.

Today, you have $11,600 in debt. That's a $4,400 reduction in your principal level. Even at your reduced 7.75% rate, you've probably paid another $100 in interest, so you've paid $4,500 toward debt reduction in those 3 1/2 months. That means that you have been putting about $1285/month toward your debt reduction.

So, even though you aren't paying off at the $1800/month that you wanted to, you are still paying more per month than you thought your minimum would be, which is great.

On the plus side, I'll have $20,000+ coming in from back taxes, work bonus, and an inheritance settlement coming in over the next couple months that will (hopefully) wipe this out for good by April or May.

So, with $20k+ in windfalls coming in, $11.6k in debt and a couple more months of whittling that debt down before you get the money from the windfalls, you should actually have at least $10k left over after paying off the debt, right? I would encourage you to take maybe 5% - 10% of the 'surplus' windfall money and reward yourself with something to celebrate your debt payoff, and then use the rest to fund an emergency fund.

AJ
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Well, Heck, AJ, I guess you're right! here I was thinking I was falling short of my goals, but I'm actually meeting them!

(Thank you! :))

I was planning on celebrating the payoff by "treating myself" to a new non-qualified brokerage account, and depositing the rest in there. But maybe I'll find something wild & crazy to do instead. :)
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Wild & Crazy is good -

deep sea fishing?

take the train to see polar bears?

go to a great concert?

surprise someone with a birthday visit?

take a racecar training course?

invest in a lifetime membership (museum or organizations)?
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