Wednesday, January 16, 2008

Finally, an update! ... and a conundrum

So glorious payday finally arrived, and while I had a couple unfortunate financial lapses (like having to replace my cell phone and ordering $44 worth of take-out last Friday for Airbear, LaRue, and myself), I still did pretty well. I managed to pay down $1,884.88 worth of debt. The best part of that came when paying off the remainder of my amex balance. Not only was this at the moment my highest-rate card (and hence my #1 debt-elimination target), but I also got to click that button on the online bill pay that says "pay full balance." You have to really look for it. It's at the bottom, underneath "pay minimum (you know you want to!!)" and "pay other amount." It felt really good to click that button.

So now my "highest rate" cards are locked in at 5.99%, 4.99%, and 2.99% for the life of the balance transfer. That's pretty slick. There's one other card which is at 0% until May, and I plan on paying that off before May because I don't want to pay them any interest at all. They thought they would trick me with their 0% trial offer, and that I'd end up with a huge balance they could start charging me an arm and a leg for, but no! They didn't know who they were dealing with. This girl plays hardball, biatches.

Anyway, here's the conundrum. I put the remainder of my money in my savings account after paying my monthly bills, so that I wouldn't see a big checking account balance and go do something stupid. But what do I do now, resolution-wise? There are a couple possibilities.

1) I could start paying loads on my now-highest rate cards, the ones that are locked in at the low-for-life rates, since those are the ones that are currently charging me interest and the 0% one is not. But this would be a terrible idea, because eventually May would roll around and that card would go up to a higher rate (it's something like 13% or 15%!!). I wouldn't be able to transfer that balance to the low-for-life cards, so I need to make sure that no matter what else happens, I can pay off that 0% card by May.

So 1)'s really not even an option. Maybe it would be, if I knew I was going to magically come into enough money to pay off all the cards by May. Then obviously, get rid of the interest ones first and then that one by May. But I don't think I'll be able to make enough salary to do that. So forget about 1).

2) I could dump all my debt-reduction money toward that 0% card now and get it down so I can start focusing on the other ones. This allows me to still be paying off things with each paycheck and bragging about it in my blog. I enjoy bragging about my own progress. I find it very motivating.

3) I could just accumulate all my debt-reduction money into my savings account for now, since my savings account rate is now higher (positive) than all my credit card rates (negative). Then I pay off the 0% card in full before May. If I get above the %0 card balance in my savings account, I can immediately be paying off the higher rate cards (like option 1, but with always keeping enough for the 0% payoff in the bank). But then in theory I could be making more positive interest than I'd be spending, and make the money "work for me" in the meantime. I hear rumors that this is what people with loads of money do with their money. They use it to make more money. Kind of like ... growing bacteria. Or something.

Now, for any normal person, option 3 would be a (let me really emphasize this) TERRIBLE idea. You know what would happen. They would have these grand plans but blow all the money on a fancy computer (or hookers and blow) and then still have a big balance on the 0% card when May came.

I am not in the slightest bit worried that this would happen to me. I have a plan, and I am extremely tight-fisted. Plus, in order for me to spend any of the earmarked money, I would have to transfer it to my checking account first. Which means I would have to plan to spend it. Which, in turn, means I would talk myself out of buying whatever it was, even if it was something I desperately needed, like a new coat. Just ask my Mom, I went like 2 years without one and she finally sent me a coat in the mail because she was concerned I would freeze to death. (Thanks, Mom!) Anyway, I know the money would be there, and that is not why it's a conundrum.

It's a conundrum because no one on earth actually understands how the hell credit card interest works. This is not an accident: the less sense it makes on your statement, and the less you can predict its behavior, the more of it you can be suckered into paying. This is how you end up with those Internet horror stories about people who pay off a $1000 credit card balance for 10 years. Well, that and people are stupid. But anyway, on my credit card statements there are these fraction-of-a-fractional-percentage daily rates, and columns all over the place, and it's a mess. And then the interest on a savings account works totally differently - it's compounded quarterly, based on your average daily balance for that quarter (I at least think I understand this one).

Now, if my savings account is at a higher rate than my cards, you'd think I would end up on the plus size, right? Spend $x in interest over the 4 months from here to May, and make $x + some amount more in interest on the savings. Then pay off the card(s) with the savings, and have some ("+ some amount more") bonus left over.

Only I figured it out (just using the typical average monthly interest on these cards for the last couple months, since the balance hasn't changed that much and will only continue to go down) and I still make less in interest on the savings account than the interest on the cards. Not a ton less, but less. I think it's something to do with when the compounded interest is added on, or something? I don't know. It is all very strange and confusing. I might call my bank representative tomorrow and ask her to explain it to me.

Feel free to post your vote as to option 2 or 3 in comments :)

P.S. Did you see that $1,884.88 I paid off this month?! I didn't want the important bragging part to get lost in all that explanation above. I could (and still may) pay off more for this month, depending on the whole option situation. For the immediate moment, the money's in savings whilst I contemplate.

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