What's the best way that someone should pay off this credit card scenario?
I have a handful of cards and I want to pay them down and eliminate interest etc. I need to keep at least 1500 credit on hand though for business use. For example card 1 was used this month for $3345 in resale purchases What would be my best approach with this scenario?
First is the balance, second is the credit limit on the account and in parenthesis is the minimum monthly payment due.
For all you math guys/gals out there(definitely not me), assuming I can make $1100.00 in payments and these are all due at beginning of month what would be my best approach?
card 1— 5853.56- 6500 limit- 9.82%(77 min.)
card 2— 295.03- 300.00 limit-17.29%(15 min.)
card 3— 1573.24-none available card closed-12.15%(36 min.)
(Card closed but still make payments)
card 4— 828.91- 1100 limit- 26.99%(32 min.)
(HOLY S$%T! is this legal?)
card 5— 433.00- 500 limit- 3.9%(20 min.)
I can think of a variety of solutions but I’d love to hear some different or creative solutions to managing and using credit. And although eliminating some has always been an option,some of us by nature of our business and cash flow need credit.
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21 Answers
Honestly the best thing you can do, and its what I am doing. Eliminate the small ones first, card 2 and 5 can be paid off quick. Then keep working your way up.
You pay down the highest APR first. Without exception. You make minimum payments on everything else until that highest APR is eliminated.
So for your next $1100, you pay:
Card 1: $77
Card 2: $138.09
Card 3: $36
Card 4: $828.91
Card 5: $20
That will pay off the balance on Card 4. You can then use that card for your revolving business debt – paying it off IN FULL each month. Any excess goes to the next highest card (#2) until it’s paid off, then the next highest (#3), etc.
@willbrawn your method, while I’m sure provides a nice emotional boost, is a complete waste. You’re doing nothing but giving the credit card companies more of your money, for no benefit. Paying off a 3.9% loan while accruing 26.99% interest on another is just silly.
@willbrawn I’m just wondering what is most expedient and has least costs etc although I may psychologically like that one. I’m afraid it’s just a false sense of security though.
@MrItty
Thanks. I’m leaning towards that but I don’t like the large balance and finance charges on card one either because it’s costing almost as much as the finance charges on two highest cards combined.
card 1— $29.89,
card 2— $3.81,
card 3— $15.46,
card 4— $17.00,
card 5— $1.46
@SeventhSense the interest is a percentage. It is not a flat amount. If you pay that $828.91 toward card #4, you will bring the interest from $17 to $0. If you pay $828.91 to card #1, you will reduce card 1’s balance (and therefore card 1’s interest) by about 14%. Which means your interest on card 1 will go from $29.89 to about $25.65. You’ll save a whopping $4.
@MrItty, well done. There’s nothing for me to add to what you’ve already said in both posts.
Except… don’t “cancel” any more of the accounts. Even if you have a store card, but you now hate the store or for whatever reason don’t shop there, and even if you have a high-interest rate card that you plan to retire, keep the accounts open. Canceling a credit card somewhat paradoxically reduces your credit scores. So if you find yourself applying for a mortgage or business loan down the road, and you’ve canceled several charge accounts, your score will be lower than it should have been.
Keep the cards, just don’t use them any more. And pay them off in full and on time every month.
@CyanoticWasp
The only reason I closed it is they were raising the rate 5% and I opted out.
Get rid of cards two, three, and four. Pay them off starting with highest interest, and about a month after paying one off, cancel it (and space them out, at least a month between canceling cards).
Honestly the others, you really only need one or two credit cards. Having more than that can be bad for your credit (as it means you COULD rack up a huge debt quickly if you so chose. I would keep cards one and five (ESPECIALLY 5, do ANYTHING you can to get them to up your limit and keep you, that’s outstanding).
For those two cards, for the sake of not hurting your credit I would pay a few hundred a month into the big one, and the minimum payment plus a few bucks into the smaller one. (Card companies don’t like it when you pay off as much as possible because then they make less on interest, and it effects your credit rating as such.. So if you want the rating over saving a few bucks, don’t dump 1100 a month into card one once you get to that point).
And yes, I’m pretty sure the legal limit for a credit card rate is 27% at the moment. Try calling that company and requesting a lower apr. Many companies will give you one “get out of jail free” card if you have been making payments on time and such. I had a card at 24%, and they bumped it down to 16 for me with one simple phone call.
@westy81585
Card 3 is closed. Card #2 is in my corporation name so that’s key. Business credit is more important than personal credit to me. They are different reporting agencies. Card 5 has limited credit but a low rate but I can’t seem to get more credit from them however I play it. And I buy thousands of dollars worth of merchandise to resell so I need more credit to facilitate growth. You can’t build up inventory with only cash and if I did I’d go under fast waiting for the sale/profit/return. Debt is not always bad but paying more than you have to on interest is. I’ll hold 1 ,2 and 5. Scrap 3&4. If I can’t get a better rate on 4 that is. Maybe now’s the time to do it. Pay it off and threaten to close.
@SeventhSense Cash is always better than credit…. Assuming you have the cash. Using credit to build inventory is the reason companies like Circuit City are now out of business. It’s a very risky business.
But it’s also how Donald Trump became a billionaire lost it and rebuilt it again.
And the owners of Circuit City now have no problems and are certainly no worse for the wear. Sometimes it’s best to go out of business.
No guts, no glory.
P.S- Cash is nothing but debt anyway.
Thank you everyone for the insights. It’s great having different perspectives to see something that’s right in front of your face. I always knew that it was considered the best course to pay off highest interest first but now I see more clearly why the savings in finance charges are not significant enough to warrant paying off lower interest rates even with high balances. You all helped me out. Good Karma to all.
What about finding a low/no interest rate card for 6 months to 1 year and consolidating all debt on one card. That would free up your business card, which you have to use, for business use only and having a balance on it that you can pay off monthly.
@chyna
I do try. Tough to get competitive rates.
@rottenit
Thanks I did. Looks like a great application.
GA, @rottenit. Very cool app.
Plugging in @SeventhSense‘s data, and using 1/½010 as a start date, we find:
* Snowball (Lowest Balance First) will result in the final debt being paid off in October 2010, with a total of $383.84 being spent in interest.
* Avalanche (Highest APR First) will also result in the final debt being paid off in October 2010, but with only $360.72 being spent in interest.
(If you make only the minimum payments on each card, you won’t be paid off until January 2020, and you’ll have spent $4,354.21 in interest).
Again, very cool app. I’ll be saving it.
But realistically the difference is so minimal either way. I mean 23 bucks. the problem is when the balances keep shifting and shuffling around. It really is a deliberate obfuscation on the part of the creditors. When in doubt pay off the balance in full as quickly as possible, pay off largest interest first unless the minimum payments are really out of control like with 10000 or more on one card and always at least pay the finance charge PLUS minimum payment to start lowering the principle. I have so many better things to do with my time..like make money. :)
You also have to factor in the notion that you’re still spending money and still charging. Those balances aren’t a constant…..
Exactly that’s what I’m saying.
The minds who started the credit card industry were the same ones who started legalized gambling only they found out they could do better with credit cards
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