Interest Rate much higher than I expected...

[Fox46]

So, I managed to rack up stupid credit card debt.

In April of 2007 the basement of my parents house (where I was living) flooded.

In June 2007, I got a girlfriend.

In November 2007, I got engaged.

In January 2008, I got a house.

I've learned my lesson, and gotten a lot of bills behind me. While I can manage my debt and slowly pay it off, I want to do it smarter and with less stress.

My situation:

Jared - $2,780 / 9% / $360 (The engagement ring/wedding ring expense)
Macys - $625 / 23% / $25
Macys Visa - $1,950 / 19% / $60
Target Visa - $1,600 / 18% / $50
American Express - $1,900 / 14% / $40
Capital One - $1,950 / 15% / $60
Citibank MC - $9,750 / 17% / $225

Essentially $820 in monthly payments.


Ideally, I'd target the highest interest rate cards first, and work my way down, right? Well, the most I reasonably believe I can get a loan for is $5,000. At 60 months, that should be a $105 payment.

So, I'd need to eliminate more than $105 from my monthlies.

So, despite the great interest rate with the jeweler, I would probably wipe out Jared, Macys, and most of Macys Visa (360+25+50=435, 435-105=$320 less per month).

So, I had gotten information from citifinancial offering me a loan a few months back. I figured I'd give them a call. I did, they offered me ... $7,500 at 26.99% .........

Really?

I was more hoping to decrease my interest rate. Am I way off? My bank was advertising 12.4% .... so, I just emailed them.

Am I being unrealistic? What should I do?

[Fox46]

(Replying to my own message so I can subscribe)

[Ima saver]

Don't take the rate of 26.99 for sure.

[boosami]

If you are struggling to pay extra on the cards, feel like the total balance in insurmountable, or have a really tight budget, snowball your payments. Order the cards from lowest to highest balance, ignoring interest rates. Pay the minimums on all cards except the top one on the list until it is paid off.
- Macy's Retail
- Target Visa
- Amex
- Cap One
- Macy's Visa
- Jared
- Citi

If you are not struggling with your budget, pay them off in order of highest interest rate to save the most in interest:
- Macy's Retail
- Macy's Visa
- Target Visa
- Citi
- Cap One
- Amex
- Jared

After the $820 in minimums, how much more money monthly will you have to put toward elimination of the debt?

[Fox46]

Well, at the moment, not a lot extra to pay with. Reasonably, I guess - I'm really looking at maybe $50 extra a month. The Jared card will be completely paid off by May 10th. That's $360 that would then become free for use.

Who is a lender that's likely to be more reasonable than Citifinancial?

[boosami]

Do you know your debt-to-income ratio and credit score? With a decent credit score, you should be able to get a unsecured personal loan at a 10-15% rate. 27% is ridiculous.

Where do you do your banking? You may be able to get a rate discount if you get a loan with a bank with which you already have a relationship. I'd even guess that you'd be able to cover the entire CC amount with an unsecured personal loan as long as your credit score isn't in the toilet.

[disneysteve]

Who is a lender that's likely to be more reasonable than Citifinancial?

Forget trying to borrow your way out of this mess.

Post your income and monthly expenses so we can help you find places to cut spending and direct more money toward debt repayment. Also, look for ways to increase income - yard sale, ebay, 2nd job or extra hours at your regular job, etc.

How are you and your fiance handling your finances - joint or separate? Hopefully, since you bought a house together, she is an active participant financially. So give us the whole picture, including her income and any debts in her name.

[boosami]

If you have truly "learned your lesson" and can put away the credit cards, I don't think there's any reason not to borrow at a lower rate so you can get out of this mess faster.

If you borrowed $20,000 @ 14% for 36 mo, your minimum monthly payment would be ~$680. Putting $870 toward that ($820 + extra $50) would pay the entire balance off in a little over 2 years. Any extra money you can squeeze out of your budget will pay it off even faster.

I haven't done the calculations, but my guess is that's faster and with less overall cost than paying straight to the credit cards. The key is just having the ability to STOP charging on those cards completely. If you can do that, you can save yourself time and money in the long run.

[Fox46]

She essentially has 10k in student loan debt. I'm aware that I'll need to start footing payments for that after we're married. My credit score was around 680 thanks to a few too many credit checks and my balance/limit ratios.

I will bring in 41,600 (gross) salary for 2008 + 10,000 subcontractor pay + 10,000 in vehicle reimbursement. She has been working here and there at a subcontractor rate for my "other" boss and has made a total of $3,500. She is not actively employed, but has been handling most of the wedding planning.

Budget:
1,025 Mortgage
820 CC debt
500 utilities
800 food (dining/groceries)
350 medical
---------
3,495

And, no, payments are not being made towards her debt currently.

[disneysteve]

If you have truly "learned your lesson" and can put away the credit cards, I don't think there's any reason not to borrow at a lower rate so you can get out of this mess faster.

I suppose that's true. What about getting a new card with a promo rate? That might be an even cheaper option. If you could get 0% for a year, you could transfer and knock down your highest rate debt much quicker. Or maybe a card with a really low rate, like 3%, for the life of the balance. I'd look into that option, too.

Before you do anything, though, sit down and call each of the current card companies and ask for a rate reduction. The worst that can happen is they'll say no. The store cards will not lower the rate so don't bother calling them (Macy's and Jared).

[noppenbd]

Go to this site:

Snowball debt calculator - Become debt free at WhatsTheCost.com

It has a calculator that will let you figure out a plan to pay off your debts. It lets you select highest-interest first or lowest-balance first (Dave Ramsey). In either case, it will take you 2 years, 5 months to pay off the debt if you put $870 towards it each month. However, I bet once you start knocking these cards off you will start to get energized about it and find some more room in your budget. As mentioned, cut up the cards first or you are just wasting time.

[boosami]

$500 utilities seems high. Can you break that down for us? Also, $800 in food is a lot compared to what most people spend on this forum, even with families of 4 or more. Where is it all going?

[boosami]

Cool snowball calculator. However, if you consolidate into a single 14% unsecured personal loan, it will be paid off at least 2 months faster and save almost $900 in interest.

[Fox46]

I'm working on the food issue. Utilities are

130 for phone/tv/internet
20 water
50 natural gas
250 electric
-------
450 (ok, I estimated too high)

Electric will go down, gas will go up as we approach winter.

[Well Spent]

Your budget seems incomplete. You must have more monthly expenses than that.

The mortgage is only about a grand a month? How did you pay for the home?

Why do you spend so much on food ($800)?

Why isn't your fiancee working? To spend valuable time that she could be earning money planning your wedding instead?

Why did she take out loans for school but isn't "actively employed"?

How long did it take her to earn $3,500? I say this to determine her earning potential.

I don't know your area's cost of living but I'm doubtful that 41,000/yr gross is enough to support two people.

Why are you so quick to commit to a partner and mortgage debt?

I ask these questions respectfully to get you to think about your decisions more deeply. Of course, you don't need to post the replies but I implore you to consider them.

I think you have a tough road ahead of you. I wish you the best of luck.