Announcement

Collapse
No announcement yet.

Exhaust Savings to Pay Off Credit Card?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Exhaust Savings to Pay Off Credit Card?

    Hello all

    New member here, my name is Wes. I am currently a college student studying to become a CPA.

    I currently have a credit card balance of roughly $1500, accuring 29.9% interst (!!!). I pay $100 each week and plan to have this balance paid in full around September of this year.

    I have $2000 in an emergency savings account and I am very tempted to throw most of that money toward this card to pay it off as soon as possible. I have every intention of making 'payments' to myself after this card is paid off, to accumulate some money to throw at my student loans once I do graduate. I have calculated that I will only save $30 in interest if I were to pay off this card tomorrow.

    Is this a good idea? Or should I keep my emergency savings and continue my weekly $100 payments to pay off this card? Would a balance between the two be effective?

    Thanks in advance for your input.

    #2
    Welcome. As you've figured out, even though the rate is obscenely high, the amount of money involved is not thankfully.

    I would split it. Since you have $100/week free, I'd suggest taking half of your EF - $1,000 - and sending that to the credit card. Then pay the rest over 5 weeks. After that, use that $100/week to rebuild your EF.

    Seeing as you are studying a financial discipline, you have hopefully learned your lesson. Don't ever use a credit card again to make a purchase that you can't afford to pay for in full when the bill comes. Don't ever carry a balance again.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

    Comment


      #3
      I agree with DS. I would leave $1,000 in your EF and use the other $1,000 to knock out the credit card balance a bit sooner.
      Rock climber, ultrarunner, and credit expert at Creditnet.com

      Comment


        #4
        Originally posted by disneysteve View Post
        Seeing as you are studying a financial discipline, you have hopefully learned your lesson. Don't ever use a credit card again to make a purchase that you can't afford to pay for in full when the bill comes. Don't ever carry a balance again.
        Thanks for the advice. The problem was that I ran into unexpected transmission troubles on my car and my credit card was the only way to get back on the road again. The bill was far north of $3500. The last thing I would EVER consider doing is purchasing unnecessary items on a credit card. I will, however, purchase fuel on this credit card once I am done paying it off, and pay the balance in full each month to keep my credit score up.

        Comment


          #5
          Originally posted by wesman1299 View Post
          Thanks for the advice. The problem was that I ran into unexpected transmission troubles on my car and my credit card was the only way to get back on the road again. The bill was far north of $3500. The last thing I would EVER consider doing is purchasing unnecessary items on a credit card. I will, however, purchase fuel on this credit card once I am done paying it off, and pay the balance in full each month to keep my credit score up.
          What kind of car is that?

          Comment


            #6
            Originally posted by artwest
            I would pay off the credit card today.

            That would leave $500 in your EF. You could then throw the $100 per week that you were applying to your CC and throw it at your EF. Instead of paying $100 per week which would include interest, you would be saving $100 per week and gaining interest....plus be debt free.
            Agreed. It's fairly short-term, and you'll have your EF back to $1000+ in just over a month (which is a typical "absolute minimum"). Paying that much interest is outrageous, and I'd say you need to get out from under it immediately.

            (side note -- did you miss a payment or something? I thought non-penalty rates that high were barred with some of those latest consumer finance reforms...?)
            "Praestantia per minutus" ... "Acta non verba"

            Comment


              #7
              I would also pay it off in its entirety.

              It's a CC. You can subsequently use it to finance an emergency if need be.

              So you'd be left w/ $500 in cash and at least a $1500 line of credit. I think that's reasonable, but I'd certainly focus on building back up the EF to a reasonable level of a few months expenses.


              Another option would be a balance xfer to a 0% offer. Then you could keep the cash on hand, but not subject yourself to the obscene interest rate.

              Comment


                #8
                Originally posted by jpg7n16 View Post
                Another option would be a balance xfer to a 0% offer.
                Except the 3% transfer rate on $1,500 would be $45 which is more than he will pay in interest.
                Steve

                * Despite the high cost of living, it remains very popular.
                * Why should I pay for my daughter's education when she already knows everything?
                * There are no shortcuts to anywhere worth going.

                Comment


                  #9
                  Originally posted by wesman1299 View Post
                  Thanks for the advice. The problem was that I ran into unexpected transmission troubles on my car and my credit card was the only way to get back on the road again. The bill was far north of $3500. The last thing I would EVER consider doing is purchasing unnecessary items on a credit card. I will, however, purchase fuel on this credit card once I am done paying it off, and pay the balance in full each month to keep my credit score up.
                  Going forward I would suggest keeping more in your Emergency Fund. $2000 is obviously not enough.
                  Last edited by bjl584; 06-19-2012, 12:17 PM.
                  Brian

                  Comment


                    #10
                    Originally posted by disneysteve View Post
                    Except the 3% transfer rate on $1,500 would be $45 which is more than he will pay in interest.
                    Not always.

                    https://creditcards.chase.com/slate-...card/blueprint

                    No balance transfer fee when you transfer a balance during the first 30 days your account is open. After that, the balance transfer fee for future transactions is 3% of the amount transferred with a minimum of $5.
                    I still say to pay the whole thing in full. Just throwing out another option if OP was concerned about keeping cash on hand in the meantime.

                    Comment


                      #11
                      Thank you all for your input. What I will likely do is pay my $100/week until the balance is at $1000, then I will use half of my EF to pay the remaining balance. Thereafter, I will start making the same payments to myself into a money market account in hopes of never having to have a balance on a credit card again!

                      Originally posted by JoeP View Post
                      What kind of car is that?
                      It's a Ford Focus. The transmission is a story for a different forum. Long story short, had to get a rebuilt transmission even though mine did not have so much as 80,000 miles on it. Transmission mechanic said he has never had to do such extensive work on a transmission with so few miles in his 20+ years in the biz. Lucky me!

                      Originally posted by kork13 View Post
                      (side note -- did you miss a payment or something? I thought non-penalty rates that high were barred with some of those latest consumer finance reforms...?)
                      About two years ago I started training at a new job and wound up one day late on a payment simply due to my forgetfulness due to the training. They jacked up my rates about 10%.

                      Originally posted by bjl584 View Post
                      Going forward I would suggest keeping more in your Emergency Fund. $2000 is obviously not enough.
                      My emergency fund was in a different bank up until six months ago. There is also a longer story as to why I did not use some of that money for my car repair, but I will keep that postponed until another time. Needless to say I will keep a much larger cushion in my EF from here on out.

                      Comment


                        #12
                        Originally posted by wesman1299 View Post
                        It's a Ford Focus. The transmission is a story for a different forum. Long story short, had to get a rebuilt transmission even though mine did not have so much as 80,000 miles on it. Transmission mechanic said he has never had to do such extensive work on a transmission with so few miles in his 20+ years in the biz. Lucky me!
                        I can't provide sound financial advice, but your Focus troubles reminded me of my Focus troubles!

                        I had a 2005 Focus until February of this year. 65,000 miles on it. Bought it new in 2005. In the time I had it it had two transmission failures. One at 40k miles that was covered under the 5year/50k warranty. The second at 65k that was going to cost me $3500 to repair. Both times when I asked the mechanics if this was "common" they both shrugged and said it was common for Focuses from the 2004-2006 era to have transmission issues. Since my 2005 Focus was only valued from Kelly Blue Book at around $4500 and the repair was $3500, I turned in the towel and traded it in for a much more reliable Subaru. I had nothing but mechanical problem after mechanical problem with my focus in the 6 years I owned it and I took great care of it. People were startled when I told them about all the issues I had with it considering I took very good care of it/never missed check-ups/tune-ups.

                        Since 2005:
                        - Two transmission failures
                        - Failed alternator
                        - Car batteries died multiple times
                        - Rotors worn down twice (I don't drive very aggressively, and my break pads were changed frequently, so I don't understand this)
                        - Air conditioning fluid leaked out twice
                        - Back window defroster electrical malfunction

                        Sorry to hear about your car issues.

                        Comment


                          #13
                          Personally I'd pay $ 1,000. from EF now just to reduce the interest. I suggest calling CC company and ask for a reduction in interest rate being charged. Worst outcome, they say no, best outcome they agree as this is extra-ordinarily high with savings accounts paying so little. How much does the interest total so far since the car repair?

                          Comment


                            #14
                            Pay off the credit card immediately. You will still have $500 left over.

                            With your $100 per month, build up that emergecy fund to about $2,000.

                            You may want to consider setting money aside for car maintenance. I personally do this and it helps a lot!

                            Also, if you have some emergency car repair that is "all of a sudden," that is what the emergency fund is designed for! The reason you have the emergency fund is so that you do not have to use the credit card.
                            Check out my new website at www.payczech.com !

                            Comment


                              #15
                              Originally posted by snafu View Post
                              Personally I'd pay $ 1,000. from EF now just to reduce the interest. I suggest calling CC company and ask for a reduction in interest rate being charged. Worst outcome, they say no, best outcome they agree as this is extra-ordinarily high with savings accounts paying so little. How much does the interest total so far since the car repair?
                              At one point in time, the interest was accumulating at a rate of nearly $5 each day. Luckily I was able to pay down a large hunk of the balance and I'm almost done paying the thing off.

                              Comment

                              Working...
                              X