Getting the biggest bang from a payment

My quest to reduce the interest we pay.  

Lately, the interest we are paying on our debts is keeping me awake at night. In particular, our large balances are what I am finding the most troublesome. It is beyond sickening to pay a few hundred dollars of minimum payments only to see the balance barely budge. I can’t help but wonder if we would be better suited for the avalanche method of paying off debt opposed to that of the debt snowball method. With my analytical self, I am beginning to think so.  

I do understand the psychological boost one gets from paying off a smaller debt. Lately, however, I feel the rush of that boost quickly squished by scrutinizing the interest we are paying on our other debts. Do I worry about our commitment to continue our quest to get debt free change if we were to rearrange our debts?  Nope, not at all. If anything, our resolve to see this through is even greater than before.

One positive move we did recently make was to do a balance transfer. For a 3% fee, we now have 21 months of interest-free payments. Crazy to say, but this kept me awake at night, too! That night I couldn’t help but think about how much more of our payment would be going towards our debt. I guess when it comes to sleep, I can’t win as positive changes can also keep me awake.

Yesterday we received an “interesting” piece of mail from one of our credit card companies. It was an offer I have never seen before. The offer was for a fixed rate of 5.99% on balance transfers for the life of the loan. Better yet was there was no balance transfer fee involved. While 5.99% isn’t exactly great, it is far less than what we are paying on other credit cards. As for the life of the loan, I’d still want to make it a short life!

As of today, we still owe $3,806 on that particular credit card. It has an interest rate of 12.74% and a credit limit of $12,350. As verified via a phone call, if we were to use our available credit to do a balance transfer, any payments made would first be applied to the lower interest rate of the debt. As always, credit cards will do what works to their advantage. Sigh. This offer is also only good through November 17. Hmm, could we pay off $3,806 and still use this to benefit us? Possibly, but it would take some pretty serious effort to pull this off.

First of all, what would this do for us? Well, it would eliminate that $3,806 of debt! After that, we would transfer the entire balances of 2 credit cards and a good chunk of another one to this fixed 5.99% rate. Doing so, we would completely rearrange our snowball and then tackle the debt that is currently last on our list. It would also mean we would be getting the biggest bang from the payments we make. While transferring to a zero percent rate would save even more, there aren’t many cards that offer the length of time we need to see this through.

So then the question remains of how to pull this off. Looking ahead, September is a three check month for us. While we do have two upcoming unbudgeted expenses that will take up some of the extra funds, we should still have a little extra to work with next month. There will also be extra pay for Labor Day. We have also decided to go ahead and cash out our vacation pay. That is a huge sacrifice for my Hubby to make. Hopefully knowing that so much of his hard earned paycheck isn’t going towards interest will make it a little easier for him. Rest assured, when our debt mess is cleaned up, it will be made up to him by doing some serious (paid for with cash!) celebrating.

I know that shifting balances and rearranging our debts doesn’t eliminate what we owe, but if by doing so we can getter a bigger bang for our payment, I feel it is well worth doing so. This method probably wouldn’t work for everyone, so please don’t take this as financial advice. As someone who has done stupid with zeros, I am the last person from whom to take financial advice! Keep in mind that personal finance is just that, personal! And you need to do what works for you. When it comes to our debt, we are just so sick and tired of being sick and tired that we want to do everything in our power to eliminate it as fast as we can.

On a final note, I sure am glad our debt doesn’t keep my Hubby awake at night. I know I do more than enough thinking for both of us!