Paying off smaller debts completely vs. large BT

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empanada
 
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Paying off smaller debts completely vs. large BT

Postby empanada » Tue Dec 01, 2015 9:53 am

Hi,

I have a few credit cards with low balances (and low or zero interest) that I can pay off within the next 6 months. I also have a 0% interest Balance Transfer amount of $7,200 (on a $8,000 limit card) that expires in July 2016. There is no way I will be able to pay this card off by then.

Do you think it would be better to keep making payments on the balance transfer (minimum is $75, I pay at least $100) while aggressively paying off the other smaller cards, or the other way around? Even if I can't pay off the BT completely I can put a dent (maybe 1-3k depending on where I concentrate my efforts) in it which would make the interest hit lower when it does finally kick in. I'm just not sure where I should be concentrating my efforts. Smaller cards with low interest that I'm being charged for now? Or a larger no interest amount that will hit me with a cumulative interest amount later?

A loan to pay off everything is not a option. I have other cards with balance transfer options but they would not cover this amount in full, only about 1/2 and then those (smaller) cards would be close to being maxed out.

Help!

(Some backstory: Fiance was unemployed for almost a year and in an effort to carry us, I took my pretty good credit and turned it into terrible credit from trying to pay my bills, the house bills and his cc bills.)


Vermonster
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Re: Paying off smaller debts completely vs. large BT

Postby Vermonster » Tue Dec 01, 2015 11:22 am

Well without knowing specifics it will be hard to run any numbers to show definitive evidence one way or another. But we can talk a bit about options.

Many cards have a minimum payment amount regardless of balance. So if you have a balance of $100 your minimum payment might still be $25. Each card will be different so you need to check. You want to make sure that if you are funneling money towards the larger balance you still have money to cover the minimums of the other cards.
Quick example:
$1200 balance on 4 cards. 4 cards each with $50 balance and one card with $1000 balance. 4 cards have a minimum payment of $25 and 1 card has a minimum of $45. That requires $145 for minimum payments.

$1200 Balance on 2 cards. 1 card with $200 and 1 with $1000 balance. Minimum is $30 for the first and $45 for the second. That requires $75 for minimum payments.


In general I would only spend on your lowest APR card, as it will probably take months to pay this off. Try and cut you balances to $0 on the rest of the cards. This will help focus money towards paying down the large balances. But really the only thing that will help is cutting spending. $1 saved is $2 towards debt, plus interest.
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empanada
 
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Re: Paying off smaller debts completely vs. large BT

Postby empanada » Tue Dec 01, 2015 1:01 pm

Thanks! I wasn't sure how specific to get. All of my small cards have minimums of $25 and I always pay off $25 + whatever interest has accrued, but more often than not I pay $50 or more per card. I've stopped using all but 2 cards, I alternate store cards (walmart and target) for groceries.

so for instance my cards look like this:
Slate 770/2000 (0% interest til 7/2016 - I would not have a problem paying this down to 0 by then)
Capital One 7200/8000 (0% interest til 7/2016 monthly minimum is about $115)
Quicksilver 685/2500 (interest is only a couple of bucks a month, minimum $25, I always pay more than that)
Walmart 370/2000 (same as quicksilver)
Target 355/3300 (same as quicksilver)
Citicard 700/1700 (same as quicksilver)

Also, the Balance Transfer card, while not charging me interest, still charges me $5 a month ($60 a year member fee).
All the balances for these cards come to a bit less than $3k. If I only paid minimums on everything but the BT (plus interest so the cards steadily go down little by little) that's only 1k, the rest of which I can put towards the Capital One (in addition to the $100 monthly minimum) but I'll still have a large balance on that AND will be carrying a balance on every other card.

I'm leaning towards paying off a couple of the smaller cards right away just to ease up on payments due -now- but I'm worried that'll mean that come july I'll get knocked with a huge amount of interest that'll negate everything I've put towards that card until then.

Thanks for the quick reply, I hope I've helped you help me a bit more :)

yfan
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Re: Paying off smaller debts completely vs. large BT

Postby yfan » Tue Dec 01, 2015 1:06 pm

I would pay off as much of the big balance as possible right before the 0% expires. You want to be paying a big interest on a smaller amount, if paying a big interest is unavoidable.

If your interest after the expiration of the promo period is 19%, here are some rough calculation: on a $7,000 balance @19%, the interest alone is $110.83 a month ($1330 a year). If you brought that balance to $4,000 by making a $3,000 payment before the promo expired, that monthly interest drops to $63.33, a saving of $47.50 a month on interest alone - which is probably more than your minimum payment on your low interest, low balance cards.

takeshi
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Re: Paying off smaller debts completely vs. large BT

Postby takeshi » Wed Dec 02, 2015 7:40 am

empanada wrote:I have a few credit cards with low balances (and low or zero interest) that I can pay off within the next 6 months. I also have a 0% interest Balance Transfer amount of $7,200 (on a $8,000 limit card) that expires in July 2016. There is no way I will be able to pay this card off by then.

While you want to pay off the BT balance in time to avoid interest and avoid interest on other cards those aren't the only considerations. 7,200 / 8,000 is 90%. Get that utilization down as quickly as possible. 90% is maxed. Long term high utilization can lead to trouble. Get it down to 60% or 50% or less as quickly as you can and then focus on eliminating the smaller balances that have been accruing interest.

rockyrock
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Re: Paying off smaller debts completely vs. large BT

Postby rockyrock » Wed Dec 02, 2015 9:15 am

One other thing to consider: I had a 0% promo period for a BT I did when I opened my Citi DC that just expired. Once it expired I called to see about getting a lower APR for the remainder of the BT. Citi actually one up'd me and gave me 0% for the next 12 cycles to include new purchases.

I had been making $500 payments which equaled about 2.5x the min up to that point. I also have another card with Citi that gets regular use and is PIF each month. There is obviously other factors in play here but never count out this as a possibility.

As always, YMMV!
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augiedog
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Re: Paying off smaller debts completely vs. large BT

Postby augiedog » Fri Dec 04, 2015 3:54 pm

So you have seven months to pay off that large balance...

It's good that you're thinking about this now. Try to pay off those small balances that are accruing interest right now.

You will want to apply for new credit for a promotional rate on purchases right now to save on interest (you should stop charging up your current cards). Try to get a card that has a 0% period for more than 12 months. I know American Express, Discover, Citi, and Bank of America have a few offers that are 15-18 months. Citi even has a 21 month offer (if you don't already have that card). You'll have to factor in the new minimum payments you'll be making as you apply for those new cards. But that will give you more money to focus on paying off your small debts.

I can see that you likely will not be able to pay off that large balance by July. You'll need to apply for another balance transfer in May and June. You might need more than one card to do this.

I understand money is tight, you should try to curb your spending wherever you can.

Keep us posted.
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