I just paid off my irs bill – but didn’t leave a prudent reserve…odat.

Get an extra job and pay off those debts faster.

I know some people say you’re crazy for trading unsecured debt (credit cards) for secured debt (the HELOC), but we were changing our ways, and between the mortgage & what is due on our HELOC, we’d still be fine if the house had to sell tomorrow. No worries.

And of course, by working 2 p/t jobs in addition to a f/t one, there isn’t much time to get into more spending trouble. :)

We’ve been living debt-free (except for mortgage) for several years, but due to various emergencies (for which we didn’t have enough set aside) we now have a balance on two cards. It feels terrible, but after reading this post, I think I can put a good plan in place.

Thanks, Trent and commenters!

Having only 1 payment per month means that I don’t accidentally miss payments, and having a locked in interest rate means I don’t have to open another account at any future time.

I figured out an amount I could comfortably pay. it ended up being the interest each month plus $300. This was not a stretch, and not intended to be. In fact, it was about the same as the 3 minimum payments plus what I was trying to put on them to make them go down. I pay it religiously just like the mortgage and student loans. Even when the interest went down, I kept paying that amount. I also put extra on it now and then, and whenever it is close to a milestone, I add it (so, when it was at $11,090.18, I paid the $350 plus 90.18).

I would also suggest start putting $25 a paycheck (or slightly more) into an emergency fund. What my husband and I found was that we had a cycle. We would get a bonus in December and pay off our credit card entirely, but had no savings. Then, we would have a problem (major car repair) and have to charge it. by the next December, we were right back in the same debt plus some.

So, this past year, we did it differently. 1/3 of each bonus, tax refund, etc. went into savings, plus $50 a month ($25 a paycheck).
With the emergency fund, I have not had to charge anything, and the debt goes down. This was an even more helpful thing for us than paying down the credit card.

Could we pay it off faster if I tightened the belt? Probably, but at this point, I would rather have a reliable slow and steady plan that works than something that is a constant source of stress.

Then, I started a spreadsheet on excel to track what we spent and when we spent it. this was eyeopening and helpful. For instance, now I know that I need to plan for the month of May, when my car insurance, house insurance, and two other signficant expenses come due. So, this year, I took part of the bonus, and put it into a “May fund” May no longer disrupts us.

We also found out we eat out almost exclusively on Sunday morning. So, we made that a no eating out morning. Our eating out bill went down by 70%.

You are absolutely write with your post. If you have several credit cards with several different balances at several different interest rates, it pays to factor in how much the finance charge is for each card each month.

Going with the highest APR method really is only truly effective if the balances are all the same. The only real variable left is then the APR.

I figured up spreadsheets approximating (off by maybe a dollar or two) the finance charge each month for all of my cards, which have all sorts of balances and interest rates, then applied the three methods. Making your large payment to the card with the highest finance charge each month came out months ahead in terms of paying off all the balances.

It looks at which card costs you the most each month and working to eliminate that cost. It requires a lot more maintenance and focus, but if you evaluate all your statements each month, it should not be difficult to find the one that is costing you the most each month.

On paper, you are absolutely right, however after years (and years) of seeing this in practice, what most often happens is that a person with two maxed out cards of 5k each (for example only) gets a 10k card with 0% to “consolidate”. They still have 10k worth of debt, they still have all the “emergencies” that encouraged the overuse of credit in the first place, but now they have the capacity of 10k more! They don’t want to close the old cards to protect their credit rating (presumably these are older cards), so they have actually created the means to double their debt load. If that same person got a fixed term loan, this is only slightly mitigated, but if in truly dire straits sometimes needed.

@Connie
@DB

Regulation D is designed to protect the reserves of the institution, and it does mandate no more than six transfers from savings unless the customer or member does them “in person”. Some institutions consider online transactions through the bank or credit union to be “in person”, while others consider in person to only be in front of a teller at the branch. There really is no standard that ALL institutions follow.

Huh? I do online banking through my credit union and do FAR MORE than six online transactions per statement cycle. Every two weeks (when I get paid) I move a lot of money around between various accounts. Nobody (my credit union, etc) has ever mentioned anything about any government regulation…?

While I agree that snowflaking is a good idea, if you do online banking you need to be aware of Federal Regulation D, which allows a maximum of 6 online transactions per statement cycle on savings accounts.

It’s worth noting though, using this method of debt reduction too frequently can temporarily ding your credit score.

Tally up ALL your spending for the past 6 months, and categorize it (use statements and receipts for this). This takes a lot of time and effort, but it’s worth it: you’ll see where you’re spending unnecessarily very clearly.
Find where you can trim a few bucks here and there, and when you have that total, apply that to your highest interest rate credit card payment.
It’s a plan that’s easy to follow through on, because it teaches you, by it’s very nature, to curb your spending in every day things so you can stay committed to that extra payment.
From there on, it’s a debt snowball.

trev

Thanks for the post.

Clint Lawton

http://www.a-debt-free-life.com

One of your best posts in a long time. This one was right on the money and you covered everything. You are right when you say there is no quick fix. It is extremely hard work, but we know that the best feelings in thw world come as a result of working hard and achieving something.

Pilgrim