YNAB You Need A Budget

[malachii]

So I used YNAB for years back when it was Basic and Pro and had only my mortgage as debt and a good savings. Then i came into a chunk of cash and got away from using it. Dumb I know.

Now I have 3 credit cards to pay off. I usually pay a couple hundred on each of them every month. Would it be better to pay very large chunks on one of them and regular payments on others? Should I pay off the smaller debt first or the higher interest cards? Is there a method to figure out which one's to pay off first?

Thanks in advance.

[malisab]

There are various debt snowball calculators/spreadsheets. Someone here often posts one that I think is just online. The one I used was from vertex42. I like to point people to them because: a) I like their debt snowball spreadsheet, and b) looking for budget templates there brought me to YNAB initially. But to use theirs, you need Excel (or possibly another spreadsheet, I'm not sure).

http://www.vertex42.com/Calculators/deb ... lator.html


It comes down to the interest rate on each of them for the cold, hard facts as to which will cost you the least interest in the long run. But some people acknowledge that paying off smaller overall debts first gives the psychological benefit that keeps one motivated. If you run things through a calculator like the one above, you can see what the difference is in the amount of interest paid using various scenarios and decide which way will work for you.

[malachii]

Malisab....thank you!

[jam40jeff]

You will likely have to make minimum payments to each credit card each month. After that, all of the remaining money you wish to put towards paying off the cards should go to the card with the highest interest rate. After that one is completely paid off, move on to the one with the next highest rate, etc.

[malachii]

Well Jeff, I was going to do that but because on one of the cards I have a balance transfer promo rate and then a merchandise purchases rate it is impossible. The CC company will only apply payment in this order : When you pay at least the minimum amount due, the minimum payment is applied as follows:
1. Balance Transfers 2. Promotional Rate Merchandise 3. Expired Balance Transfers 4. Introductory and Regular Rate Merchandise 5. Cash Advances
Phil: To the extent your payments exceed the minimum payment due each billing period, we will generally apply these excess amounts to balances with high APRs prior to balances with lower APRs. Otherwise, we will apply payments and credits at our discretion, including in a manner most favorable or convenient to us.

So this means paying down the higest interest is impossible at this point. Had I known the above information BEFORE hand I would have never transfered accepted the 1.99% transfer deal becaues now the higher interest general merchandise stuff sits there growing at a high interest rate. I did however use those caculators suggested above and must say they are AMAZING. I played around with the numbers and figured out the quickest way to pay off the debt with the least amount of interest.
I also learned if i pay the min on the card with the transfer balance and then make multiple payments across the month instead of just one big payment, each time funds are applied to the transfer balance. Making only one payment a month results in only the min pmt being applied to this balance. So in a way I have learned to beat them at their own game.

Thank you for taking the time to answer my question.

[jam40jeff]

Well Jeff, I was going to do that but because on one of the cards I have a balance transfer promo rate and then a merchandise purchases rate it is impossible. The CC company will only apply payment in this order

Ooh, I'm sure you don't need me to tell you that this is a bad situation. The credit card company loves to offer you balance transfers when you have a balance already sitting on the card at a high rate. At least you know for the future the trap they are trying to put you in.

That being said, recently the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act) was passed. This forces credit card companies to apply any payment over the minimum to the highest APR balance. So your best bet is still to do as I suggested. If your card with multiple APR balances has a balance with the highest APR, make the minimum payments to all of your other credit cards and then put everything else towards this card. The minimum payment will go wherever they want it to go (there's nothing you can do about that), but then everything else will go to paying off the high APR balance. Once this balance is paid off, you then reevaluate which card now has the highest APR and make the extra (in excess of minimum) payments towards it.

The Debt Snowball calculators linked to are great (and especially for showing why the Avalanche method is so much better than the Snowball method), but I don't think they take these factors into account.

[malachii]

WOW...I did not know that!!! Thank you Jeff. You have given me a bit of peace today as I was really fretting over how they handled these cards.

Thanks so very much.

[jam40jeff]

You're welcome. I am interested in this because the act was passed right around the time I finished paying off a card on which I had been similarly duped (made a balance transfer but already had purchases on the card at the time with a high APR). I could have used the act being passed about 5 years ago!

Here is the Wikipedia article on it:

http://en.wikipedia.org/wiki/Credit_CARD_Act_of_2009

And the relevant section:

"Requires card payments to be applied to the debt with the highest interest rate first, namely debt accrued on cash advances. Most card companies use debtors' payments to pay off a lowest interest rate balances first. The dollar amount of the minimum payment will still apply to pay off the lowest interest rate; however any dollar amount more than the minimum payment will be applied to the highest interest debt."

[malachii]

Perfect, the information I had came quoted from a chat window with a representative from Discover. I think maybe they need to read the article too.

I have now revised my budget to do just as you suggested. My first payment will wipe what is left of the transfer amount so I can move on to the higher interest stuff.

I have found this forum to be such a wealth of information it is well worth the cost of the YNAB software to have access to the forum!

[MALMomma]

We're down to our last $5K from about $16k earlier this year. What we have done is to attack the highest interest cards first, no matter how big or small the balance. When I used a debt snowball calculator (love the one by Vertex), I saw that by doing it this way, we'd pay less interest over all. THAT was a bigger motivator than Dave Ramsey's "attack smallest first" theory.

Once that was decided, we put the minimums on all of our other cards and put as much as we could on the highest APR card. Kept doing that until now we only have 1 card and 1 line of credit.

Good luck!

[Maggie Magpie]

My favorite debt snowball calculators are:

http://www.whatsthecost.com/snowball.aspx?country=us

.....and the one below which integrates a savings plan (use less then 1% as your savings rate instead of their default which is 5%!!)...

http://www.livesolid.com/en-US/tool/too ... det07.jspx

The integration of the savings graph on this one really drives home the need to pay off the debt.

[malachii]

Thanks Maggie!!!

[malachii]

Here is a question to throw into this mix. I usually pay an extra $500 each month on my house note. This will result in the re-fi I just did being almost paid off right at the 7 years when the 3.99% interest rate is to be renegotiated. Should I stop and apply those monies to the credit cards or stay on the mortgate repayment plan I have so I don't end up with a balance on my mortgage that 'might' end up with a high interest rate?

Has anyone finished an ING DIRECT 7/1 morgtage before? What did you think? I just did my re-fi a few months back.

[MALMomma]

Hmmm... A lot can happen in 7 years - better income, sale of a home, etc. etc.

First, as for your refi and that $500... Have you factored in the money you pay towards debt in that 7 year pay off? If not, how would that money help the cause once your debt was gone?

Second, if you used that $500 now towards debt, how much faster could you pay it off? Once you have it paid off, how much of that debt money could you put toward the refi?

Personally, I'd throw everything at the bad debt and worry about the refi later. You've got 7 years and as I first said, a lot could happen over that time.

[bookman413]

An actual, current high interest rate you are paying now is more important to take care of than a future theoretically higher interest rate (that probably won't be very high anyways compared to average credit card rates) on your refi that won't happen for 7 years.

SOOOO:

Throw all the money at the high interest debt and just pay the normal payments on your refi--IF you have a solid plan to not use that money for anything else other than debt reduction. In other word, if your current refi budget category is $1500 per month and your credit card payments are budgeted at $500 for a total of $2000, keep paying $200o per month total but throw as much of that $2000 at the high interest debt as possible.

Then when the h.i. debt is paid off, redirect the full $2000 monthlytowards either the refi or towards whatever you deem is most financially advantageous at that time.

If you have a system set up like this in your budget and follow it, this is a good plan.

If you are going to piddle the cash away on something else or *heaven forbid* go "outside the budget" as a result of redirecting the money, then....that's not so good.