Help! How to Pay off Credit Card with 2 Different Interest Rates?

beachy · 11-02-2009, 10:42 AM

I have just one credit card with a balance, but it's just over $10,000. $5,000 of it is locked in at a promo rate of 1.99%. The other $5,000 is currently at 15.9% (increased from 5.9% about six months ago!)

It's my understanding that the credit card company applies my monthly payment toward interest and the principal on the 1.99% balance first, and won't start applying any of it to the 15.9% balance until the lower rate balance is paid off. They make more money that way.

My question for you wise 'Wisebreaders' is what is the fastest way to pay off the entire $10,000? I can swing $700 per month, maybe more.

I'd love to hear your ideas. Many, Many thanks!!

Dr Dean · 11-02-2009, 12:17 PM

The mathematicians on this board sometime disagree, but the best way to get out of this, is not worry so much about the rates. With all the credit card rules changing, it may be difficult to wrangle a no interest or low interest deal for a balance transfer. But those may be available if you qualify, credit score wise. Here is a Link for you to look into.
My recommendation is just to get mad and start paying off the card as fast as possible. The good news is if you have 700 bucks/month now, with just a little work on the budget maybe you could bump that up. At worst, you will be finished paying this off in 15-16 months.
Have a yard/consignment/ebay sale and pour it to it, live on the cheap for a while and I bet you could knock it off in half the time.

Of course the moral to the story is not going back. Either forgoing cards altogether or paying your balance monthly.

In the future, make sure you have an emergency fund built up so you don't have to use your cards for the unexpected expenses in the future.

Good luck!

Socal104 · 11-02-2009, 04:38 PM

$10K, not so bad especially if you can put $700 a month towards it. First thing is to analyze how you got to $10K in the first place. If you are paying your card down by $700 a month and incurring $500 in new expenses, its going to take forever to pay that off. Realistically, most people can't go to zero but if you can you'll be plugging a hole in the bucket that you are trying to fill.

In terms of the new legislation, the practice of applying payments to the lowest interest rate is going to change, but that change may not happen with all card companies until February, and hopefully by then, you'll be 1/3rd of the way done. Either way, with the amount you are able to dedicate you can make pretty quick work of this debt if you don't incur new charges.

One of the ways I suggest that you pay down your debt is create a very short list of 3 concrete and actionable steps to achieving your goal of being credit card debt free. For instance, you might say, "no eating out until we have reduced our debt to $5,000." Or maybe "Cut the cable until we've paid this off". Whatever makes a difference. Write it down, stick it on the fridge and if you start to deviate from your list, sit down and talk about it. You might just put your debt number on your fridge if you want a constant reminder. Goals work much better when you are reminded of them every day.

Good luck on the debt.

SoCal

beachy · 11-05-2009, 06:59 PM

Thank you both for your advice. I cannot wait to get this card paid off. It's our last one. We have been on this journey for a while, but are pleased that it's working!

This last card does not get used AT ALL. In fact, the $700 payment we're making is one I set up as an automatic payment, and I feel fortunate to be able to put that much toward it.

I was just wondering if there's a way to put an extra amount toward the higher interest rate part of the balance. You know how you can make a mortgage payment, and then separately, make another one and specify that it go toward the principle only? Is there any way to make a regular payment on a credit card, then make an extra payment and specify that it go toward the balance with the higher interest only?

Have I stated my question clearly? Thanks for your input!

Dr Dean · 11-06-2009, 03:37 AM

The card company will not split the account. More trouble and less profit for them. So paying it off quickly or moving the entire amount are your only options.

If you found any replies helpful, please it the thank button on the lower right hand side of the post.

11-02-2009, 10:42 AM	#1
beachy Junior Member Join Date: Nov 2009 Location: California Posts: 2 Thanks: 2 Thanked 1 Time in 1 Post Reputation: (11)	Help! How to Pay off Credit Card with 2 Different Interest Rates? I have just one credit card with a balance, but it's just over $10,000. $5,000 of it is locked in at a promo rate of 1.99%. The other $5,000 is currently at 15.9% (increased from 5.9% about six months ago!) It's my understanding that the credit card company applies my monthly payment toward interest and the principal on the 1.99% balance first, and won't start applying any of it to the 15.9% balance until the lower rate balance is paid off. They make more money that way. My question for you wise 'Wisebreaders' is what is the fastest way to pay off the entire $10,000? I can swing $700 per month, maybe more. I'd love to hear your ideas. Many, Many thanks!!

11-02-2009, 04:38 PM	#3
Socal104 Member Join Date: Oct 2009 Posts: 53 Thanks: 1 Thanked 1 Time in 1 Post Reputation: (31)	$10K, not so bad especially if you can put $700 a month towards it. First thing is to analyze how you got to $10K in the first place. If you are paying your card down by $700 a month and incurring $500 in new expenses, its going to take forever to pay that off. Realistically, most people can't go to zero but if you can you'll be plugging a hole in the bucket that you are trying to fill. In terms of the new legislation, the practice of applying payments to the lowest interest rate is going to change, but that change may not happen with all card companies until February, and hopefully by then, you'll be 1/3rd of the way done. Either way, with the amount you are able to dedicate you can make pretty quick work of this debt if you don't incur new charges. One of the ways I suggest that you pay down your debt is create a very short list of 3 concrete and actionable steps to achieving your goal of being credit card debt free. For instance, you might say, "no eating out until we have reduced our debt to $5,000." Or maybe "Cut the cable until we've paid this off". Whatever makes a difference. Write it down, stick it on the fridge and if you start to deviate from your list, sit down and talk about it. You might just put your debt number on your fridge if you want a constant reminder. Goals work much better when you are reminded of them every day. Good luck on the debt. SoCal __________________ www.LiveCheap.com Live the Good Life....Cheaply! Twitter: @livecheapnews Facebook.com/LiveCheap

11-06-2009, 03:37 AM	#5
Dr Dean Junior Member Join Date: Oct 2009 Location: Georgia Posts: 14 Thanks: 1 Thanked 2 Times in 2 Posts Reputation: (12)	separate payments on card The card company will not split the account. More trouble and less profit for them. So paying it off quickly or moving the entire amount are your only options. If you found any replies helpful, please it the thank button on the lower right hand side of the post.

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11-02-2009, 12:17 PM	#2
Dr Dean Junior Member Join Date: Oct 2009 Location: Georgia Posts: 14 Thanks: 1 Thanked 2 Times in 2 Posts Reputation: (12)	The mathematicians on this board sometime disagree, but the best way to get out of this, is not worry so much about the rates. With all the credit card rules changing, it may be difficult to wrangle a no interest or low interest deal for a balance transfer. But those may be available if you qualify, credit score wise. Here is a Link for you to look into. My recommendation is just to get mad and start paying off the card as fast as possible. The good news is if you have 700 bucks/month now, with just a little work on the budget maybe you could bump that up. At worst, you will be finished paying this off in 15-16 months. Have a yard/consignment/ebay sale and pour it to it, live on the cheap for a while and I bet you could knock it off in half the time. Of course the moral to the story is not going back. Either forgoing cards altogether or paying your balance monthly. In the future, make sure you have an emergency fund built up so you don't have to use your cards for the unexpected expenses in the future. Good luck!

11-05-2009, 06:59 PM	#4
beachy Junior Member Join Date: Nov 2009 Location: California Posts: 2 Thanks: 2 Thanked 1 Time in 1 Post Reputation: (11)	Thank you both for your advice. I cannot wait to get this card paid off. It's our last one. We have been on this journey for a while, but are pleased that it's working! This last card does not get used AT ALL. In fact, the $700 payment we're making is one I set up as an automatic payment, and I feel fortunate to be able to put that much toward it. I was just wondering if there's a way to put an extra amount toward the higher interest rate part of the balance. You know how you can make a mortgage payment, and then separately, make another one and specify that it go toward the principle only? Is there any way to make a regular payment on a credit card, then make an extra payment and specify that it go toward the balance with the higher interest only? Have I stated my question clearly? Thanks for your input!