Is this a good way to pay off CC's?

[Kris10Leigh]

I was thinking about this today. We are close to having all of our debt on one CC now and that CC is 0% until October of 2007. Does it make sense to make only the minimum payment while stashing away as much money as possible into an ING account with 4.5% interest? Then when we have the right amount of money in the ING account to pay off the CC, just send it all in one lump sum? Is this a sound idea?

[Jacklad]

Originally Posted by Kris10Leigh

I was thinking about this today. We are close to having all of our debt on one CC now and that CC is 0% until October of 2007. Does it make sense to make only the minimum payment while stashing away as much money as possible into an ING account with 4.5% interest? Then when we have the right amount of money in the ING account to pay off the CC, just send it all in one lump sum? Is this a sound idea?

Sure - basically you'll be making more interest by saving it than you would be losing in interest on the credit card, so anything you do make puts you ahead.

As long as you can pay off the card before Oct 07 (i.e. before the rate rises on the card), it's a perfectly sound idea.

Jackie

[Diolla]

It is a sound idea IF you have the discipline not to touch that money (except perhaps a dire emergency)

You may want to consider paying just a little more than the minimum. Although not often some CC companies can stick you with default rates if you pay only the minimum for a period of time. I think they see it as a sign you are in over your head.

Good luck.

[creditcardfree]

So how much would you earn in dollars on the money you are stashing away?

I dislike debt so much that I'd rather put all the money on the CC and just get it done with. The freedom from the debt and seeing the balance go down would mean so much more than the interest.

Do get me wrong, I love earning interest on my savings, just not enough to keep debt around longer.

Good luck in deciding.

[Ima saver]

I agree with creditcardfree. Even tho it is a way to earn a little interest, I would rather get all my credit card debt paid off and watch that balance go down each month.

[Great to be Debt Free]

Ditto for me! And to be honest, I think I am better at being frugal when I see how close I am to paying off a debt rather than simply seeing savings grow. That's just me, though.

[Ima saver]

Well, that is me too, GTBDF!!

[Jacklad]

Originally Posted by Great to be Debt Free

Ditto for me! And to be honest, I think I am better at being frugal when I see how close I am to paying off a debt rather than simply seeing savings grow. That's just me, though.

It's just a psychological trick, though - for me, the bottom line is what's important. I don't just look at the debt, I look at the overall net worth picture.

It's just like the "debt snowball"; I never bought into the concept of paying off the smallest debt first. I always put my extra money against the debt with the highest interest, where it does the most good.. But I do understand that some people psychologically "need" the boost of seeing a debt gone - it's just not my thing. Different strokes, etc.

Jackie

[greedy4chips]

It's a comfort question. Whichever way lets you sleep well is the way you should do it. I for one would never pay off the card if I could continue to carry the money at 0% and earn 5+% on a savings/investment.

I can sleep well knowing I have the money to pay off all the debt if for whatever reason I am forced to make that choice.

[LuxLiving]

I'm w/Greedy on this one - who'd a thunk it what with me hating debt as I do.

BUT I do see the psych advantage in paying off ONE little piddly CC first. It's such a rush. I did that - then buckled down on the rest and slashed and burned on the highest rate ones and then transferred to lower interest as fast as I could! Soon zip-zap-viola they were TOAST I tell ya! TOAST!!! -she shouts w/glee!!

I don't think it has to be one over the other IF she has enough cash flow to keep it up and/or good enough credit to keep the low interest offers coming!

What about splitting the difference?

Example bill 4500, min pymt 400.

Cash available 650. Take the 400 to pay min. Take remaining 250 & chunk it into 3rds. 83.34 to extra speedy payoff - Past. 83.33 to present (some needful item that you'd ordinarily have to charge for later?) and 83.33 saved back towards having a hunk to make an out at payoff time (future) if unable to roll it to another 0% card.

Do you have some other money set aside in an emergency fund?? This could be your temp/short term/baby e.fund until you get that CC off your back.

[Kris10Leigh]

I'm leaning toward putting my money in the savings account. Here's why:

1. It earns interest. I know exactly how much debt I owe, and I can gleefully watch as the funds in my savings account grow.

2. Like Lux said, I could use it as a temporary emergency fund, though it would have to be a pretty big emergency! Still, our current "emergency fund" is our CC. Bad idea!

3. I am very disciplined about paying off credit cards.

4. I really like the idea of letting my money work for me by earning interest. I feel like I'm cheating the CC company because instead of them charging me 4.5% interest (or whatever) I will actually be MAKING 4.5%. That's pretty cool.

Thanks for the thoughts!

[Bluezy]

You would earn the interest on what you would save while paying off the debt, however, if the debt were eliminated you would have more principle and, in turn, more interest. For that reason I vote to pay off the debt as soon as possible.

[tgavin71]

First of all I would work out how much money I would need each month to have the card fully paid off by September 07 at the very latest. I would then pay the minimum amount required by the cc company and put the rest of the months payment into ING. Get this done by direct debit so you don't spend it. When you have the full amount in transfer and pay it off. For your strategy to work you need to be disciplined. Just "stashing as much money away" as possible won't work.