Money savvy boardies--good idea or bad idea?

[Ravin]

I currently have 2 credit cards and a personal loan.

 

Card 1 has 18.5% APR and is paid off.

 

Card 2 has 0% APR for another 15 months, then 14.5% APR, and has a balance on it.

 

Personal loan has 18.9% APR, on a wretched amortization schedule for the interest, but no interest will be charged on principal paid off ahead.

 

There would be extra charges for transferring the loan balance to the CC and higher interest. But, I could run that card up with monthly expenses and pay the cash earmarked for those expenses towards the loan

 

E.g., pay the phone bill with CC, then pay off the loan the amount of the phone bill, etc.

 

I can do this for most expenses except rent. The money I am now spending monthly on the loan payments will then go toward paying down the CC balance instead as soon as the loan is paid off.

 

Does this sound like a good plan? Or not?

 

CC2 would be close to maxed out by doing this, but CC1 would still have no balance.

[maize]

Yes, I would use the credit card and pay down the personal loan quickly.

[Carol in Cal.]

Depends on how much the extra charges are.

 

How are you at not using credit card credit?  If you're good at 'resisting', then I'd look for another 0 interest rate card and get the free balance transfer deal.  Then use it like you said.  We did that with a Slate card one year when we had sudden an unexpected appliance costs.  It worked out great, but we really went after that balance, and we didn't ever use the card once the 0 interest rate period was finished.

[happi duck]

Would the card still be at 0% when you are done with the loan and then beginning to pay it off?

 

If not, I would double-check, beyond any doubt, that the 0% deal doesn't charge all the back interest.

 

Otherwise, to me, it makes sense to get rid of the loan.

[StephanieZ]

First off . . . if your credit is improving/decent, then you'll probably get more 0 (or very low) % offers soon. (Nearly always, after paying off a major debt/card, immediately the 0% offers flow into the mail box, IME.)

 

When we were broke and running balances on credit cards . . . I played the cards like a master, lol. When I'd get a 0% offer in the mail, they'd always be good for 2-3 months . . . So, I'd pay THAT card down to $0 and then I'd transfer the max I could to it for the 0% . . . Rinse, repeat. I ran a lot of debt that way for very low over all cost, for years. Not very comfortable to have that sort of debt over your head, but at least the actual "cost" of the debt was very low. 

Danger is always that you'll NOT pay off the balances and just accrue more and more debt . . . 

 

If you are diligent about NOT letting that happen, and actually making progress on your debt over time, then I personally am in favor of using the interest rates to your advantage. Pay off high interest debt first, etc. 

 

Also, when you pay off a card, I'd stash it away in a safe place but do NOT close it (for credit rating purposes).

 

Watch for better offers on current cards (best option) and even for new offers from new cards . . . But, keep in mind that any NEW cards will ding your credit score. So, avoid opening new accounts if you plan to apply for a mortgage/car loan/etc anytime soon. 

 

If you carefully keep track, on a monthly basis at least, of the balance on EVERY debt and make sure you are truly going in the right direction, then you're in good shape. 

 

Debt sucks, and those are very high rates these days. If you don't see a way of paying it off in the next 1-2 years, I'd seriously consider looking for a debt consolidation loan or similar thing that is at a better interest rate. 

 

Worked for me . . . but YMMV. 

 

 

[gardenmom5]

I currently have 2 credit cards and a personal loan.

 

Card 1 has 18.5% APR and is paid off.

 

Card 2 has 0% APR for another 15 months, then 14.5% APR, and has a balance on it.

 

Personal loan has 18.9% APR, on a wretched amortization schedule for the interest, but no interest will be charged on principal paid off ahead.

 

There would be extra charges for transferring the loan balance to the CC and higher interest. But, I could run that card up with monthly expenses and pay the cash earmarked for those expenses towards the loan

 

E.g., pay the phone bill with CC, then pay off the loan the amount of the phone bill, etc.

 

I can do this for most expenses except rent. The money I am now spending monthly on the loan payments will then go toward paying down the CC balance instead as soon as the loan is paid off.

 

Does this sound like a good plan? Or not?

 

CC2 would be close to maxed out by doing this, but CC1 would still have no balance.

 

I asked dh - as this is his specialty, and this is his response:

Getting the highest interest rate loan/credit card(s) paid off in order of highest interest rate first is your goal. Paying for expenses with the zero balance card and using funds that would have paid those bills to pay down the loan makes sense. You avoid the balance transfer fee this  way. Watch for another zero interest rate credit card deal. Rolling credit card balances to zero rate cards is worth the cash advance fee.

[StephanieZ]

ps. If you are in the market for a private consolidation loan, I've heard good things about this company. A friend actually invests a lot in these loans, essentially lending his money to people in need of a loan . . . I don't know anyone who has used it as a borrower, but from what I have seen when I was investigating investing in these loans, it seems to me that the overall rates are substantially lower than the 18-19% you are paying. I can't vouch for it, but it is something worth considering if they can give you better terms than you are paying. 

 

https://www.lendingclub.com

 

 

Edited February 4, 2017 by StephanieZ

[Annie G]

I asked dh - as this is his specialty, and this is his response:

Getting the highest interest rate loan/credit card(s) paid off in order of highest interest rate first is your goal. Paying for expenses with the zero balance card and using funds that would have paid those bills to pay down the loan makes sense. You avoid the balance transfer fee this  way. Watch for another zero interest rate credit card deal. Rolling credit card balances to zero rate cards is worth the cash advance fee.

 

I agree with what your dh said. 

 

One thing to remember, though, Ravin. As the months pass and the credit card balance increases, you'll have a higher minimum payment on that zero interest credit card.  Factor that in when you plan your monthly budget so you don't send ALL your utility money to the loan payment. 

[Seasider]

A while back someone posted a link to a site that shops for 0% cards... I can't remember the name but perhaps someone else will.

[xixstar]

How long do you expect to pay it all off?

 

If you can do it in 1-2 years, I wouldn't stress over the interest rates and instead just do everything you can to pay it off. If it's just 1 year, then you're not talking about a crazy amount of interest paid relatively speaking to the effort to do all this juggling.

 

I've tried the juggling balances to get out debt or get ahead strategy and it never really got me too far. It's far more effective to just get motivated to seriously pay it off.

[Ravin]

We only have so much room in the budget for paying off. The credit balance being carried was largely for medical expenses; our regular monthly bills and spending are staying within our means. A couple of times a year I get an "extra" paycheck in a month because I'm paid biweekly, and part of that goes to paydown debt, as well as infrequent expenses like buying shoes and auto maintenance. In January I paid off $850 on credit card #1, for instance.

 

Tax return would also go to this purpose, but this year it will be less than $200.

 

In June or July my student loan IBR payment will probably increase (it's currently zero) so I want to get my monthly payments on other unsecured debt down to leave some room in the budget.

[SparklyUnicorn]

The transfer fee will likely be less than what you will pay in interest within the 15 months or whatever you get.  Then if you don't pay it off after that, the interest rate is still lower on the card you consider transferring it to.  So I do think there is benefit to transferring despite the transfer fee.  You could use one of the calculators on credit karma to show you examples of various scenarios. 

[Ravin]

I won't incur a transfer fee, because I'm paying the loan out of my checking account in the amount I've charged for other things onto the credit card. I should be able to pay it off in a couple of months this way.

 

 

[Ravin]

Thanks everyone for the advice/responses. DH didn't think it was a crazy idea, either, but our track record isn't great. We went years with no credit because we both made some poor choices when we were in our early 20's.