shotgunjimmy

so ive got one credit card that i have any balance on. right now, its at about 3900, with a 4500 dollar limit. ive been making close to double payments lately, but am discouraged to see the balance almost never change. at this rate, it'd probably take me a good 3 years to pay it down.

so what im thinking about doing this: when i get payed, ill pay all my bills from my checking account. then i would put the remainder of my paycheck towards the balance of my credit card, and then use it to make purchases that i need to make.

my interest rate isnt really that high, something around 10.9% right now.(prime + 5.9%) i think that by doing what i described above, i would be paying less in interest and the balance would go down faster.

i am curious to hear your suggestions on this method.

thanks in advance guys

james

cthree

I think you need to stop using the card and setup a budget for paying it down, something like $500/month. You may need to tighten your belt for a few months but you have to remember a couple of things:

a) credit card interest compounds monthly. You pay interest on interest.
b) by using the card and carrying a balance you are paying interest BOTH on your new purchases and your balance.

This is why your balance doesn't seem to go down. First the interest gets paid, then principal. You need to make payments which go way beyond just the finance charges. Those are probably something like $80/month and you are going to have to pay interest on that $80ish regardless of whether you paid the amount in full or not because if you carry a balance then you pay interest on everything. Check your cardholder agreement. It likely says somewhere in the tiny print "bend over and lube up".

The oddest thing you are going to find is that you can't actually pay it off. Even if you wrote a check for the balance owing and sent it in on time. Next month you would still have a balance. You have to actually overpay the outstanding balance by an amount more than the finance charge on the finance charge for this month so that you have a zero or credit balance on the statement closing date of the next statement. Remember you pay interest on new purchases the day they are made if you don't pay for them by the due date and finance charges are billed at the beginning of the cycle, you pay the max amount of interest on them.

Since your payment is paying the oldest debt first that means that unless you pay off the whole amount you incur interest charges from the second you swipe your card on any new purchases. The ONLY way to use a credit card and not get royally screwed is to pay the entire balance in full every statement and do it on time.

Now you can do what you propose but you are paying a big premium for not starting the billing cycle with a $0 balance. So long as you understand that. As a strategy to pay it off it's not really the best. You need to stop charging to it and pay it off as quickly as you can by throwing as much money as you can. The faster you can get the balance down the slower the interest charges will compound and multiply.

Also, check your statement and make sure you are really paying that rate. If you are late on a payment, skip a payment or go over your credit limit most cards will automatically bump your rate into the high 20% range like 28.8% where it stays forever. Read your statement carefully.

sahtt

cthree summed it up nicely. I want to highlight the part about the rate adjusting. The vast majority of terms I've read over [too many] would cause the rate to increase close to 29% given the situation you just described to us.

Imagine if you were getting paid 29% interest and it compounded monthly. Most CC companies don't have to imagine [or the banks behind the scenes at least].

shotgunjimmy

thanks for the advice guys!

cuurrently i am paying as much as i can on it, while still being able to make my other bills and have money for gas and other things that i need. i guess the hardest for me is putting what extra money (IF any) i have at the end of the month towards the balance of the CC. im thinking that if i do what i suggested above, than i wouldnt have to worry about putting more money towards the card, since it would already be there.

again, thanks for the advice!

james

clawhammer

Do you have good credit (above 700 credit score)?

If yes, then you can probably open a second card, and transfer your balance there and pay 0% interest for about 12 months. There is usually a 3% balance transfer fee with a $75 cap.

cthree

A +700 score is hard to get when you've got a revolving credit account so close to the credit limit. Another option to consider is getting a consumer loan from a bank and using the money to pay off the CC account.

shotgunjimmy

last i checked, which was about the middle of march, begining of april, my credit score was a 715. ive never been late on a payment, and have had a few car loans paid off for trade in.

james.

clawhammer

If your credit score is 715, then go ahead and apply for a credit card and transfer the balance.

shotgunjimmy

k, i will defiently look into it. whats the best way to go about doin it? what should the plan be for when the 0% interest goes away? and anybody know of any good CC companies to start with?

MaxGeek

Try to pay off as much as you can while you have the 0%. Don't slack just because your getting 0% or you'll end up in the same boat again. Afterwards if you still have a balance you could do the same thing again, but hopefully you push hard enough to pay it off before then.

I like Capital One.