BankerGirl

Posted by Heidi on November 27th, 2007 in credit cards, debt, loans

Today I had a small victory in my battle with debt - I found a bank that would consolidate all of my credit card balances at fixed rate of 5.99%.  That’s lower than the interest rate on my car loan!  This should allow me to make some major inroads to eliminating my revolving debt. 

There are no words for the relief that I am feeling right now.  I have been paying $600 - $900 per month towards credit card debt for a couple of years now - and while my income has increased significantly since then, I haven’t made any headway in paying that revolving debt down.  Why?  Because I was still using the cards.  Most months, I spent more than I made - not by design - but because I ran out of money for necessities.

Here’s how I have been getting by: When I make my credit card payments, I typically add 20%-50% of the required minimum payment to my check.  For example, on a bill with a $225 minimum payment, I pay $300.  I do this for all four of my credit cards, and feel pretty good about myself because I am paying off additional principal.  Then I proceed to blow it: because of my failure to budget or plan ahead, I often have “too much month at the end of the money” - and so I find myself charging things like groceries or gas until I get paid again.  This effectively reverses my “good” behavior by bringing my balances right back up where there were during the previous statement cycle.  It’s a treadmill I can’t wait to get off. 

In August 2007, I finally took the credit cards out of my wallet.  I haven’t been adding to my debt (with the exception of a mini-shopping spree in early November), but because the interest rates are so high on most of my cards, it’s been extremely slow going. 

The chart below shows my current balances, existing interest rates, and the amount of interest I would pay if I stayed on my current payment plans (assumptions: WaMu is paid off in 36 months, the other three are paid off in 48 months).

Existing Payment Schedules
Card	Balance*	Current Rate	Interest
WaMu	5,847.77	28.99%	$ 2,976.06
HSBC	4,459.42	17.74%	$ 2,687.88
Chase	3,893.34	7.99%	$    582.59
Bank	3,228.89	27.49%	$ 1,946.19
Total	17,429.42		$ 8,192.72
*as of 11/27/08

Here is the same chart, with the new, lower rate (three year amortization) :

Consolidated Payment Plan
Card	Balance	New Rate	Interest
WaMu	5,847.77	5.99%	$    555.69
HSBC	4,459.42	5.99%	$    423.76
Chase	3,893.34	5.99%	$    369.97
Bank	3,228.89	5.99%	$    306.83
Total	17,429.42		$ 1,656.26

Today, with one phone call, I effectively saved myself $6536.46 over the next four years!  I only wish I had been more persistent about getting this done sooner (earlier this year, I was declined for a “preapproved” consolidation loan with a major bank - so I gave up because I figured no one would lend to me - I really should have stuck with it!).  If I continue to put $700 a month towards this debt, I will have the entire balance paid off in less than 26 months!  What a great feeling to know that if stay on track and my income remains steady, in just over two years I could have an additional $700 to invest each month. 

Lessoned learned: if you have decent credit and need to consolidate, call around.  Chances are you’ll find a bank that needs new loans enough to take on your unsecured risk at a much better rate.

Stumble it!