cockamany idea? or sound financial course of action?
Look at me, I’m a blog-posting poster person. Two in one day!
So, when I was persuing the whole “I don’t wanna pay interest!” thing, another idea kind of poked it’s way into my mind that I shoved onto the back burner, at least until all the balance shuffling has stopped. I brought it up my husband, who agreed to do it, and then I immediately changed my mind and said we shouldn’t do it. I am nothing if not fickle. So here I am, writing it all out to you people, because you know, the internet always gives good advice!
RL (who comments here now and then, hi RL!) sent in her debt situation to Free Money Finance, who posted it on the blog and asked his readers for suggestions. There were a lot of suggestions- A LOT! It’s kind of interesting to see how many different possible scenarios there are for a situation! It was one of the many suggestions for her that has been tinkering around in my noggin. (I posted my thoughts over there too, just FYI.)
Here is the specific comment that has been “festering“, but so you don’t have to clicking around, the jist of it is, put the debt snowball into a high interest savings account while only paying the minimums on the (0%) cards. So the cards are staying current, but the balances are not going down drastically. Instead, the money that WOULD be going to the cards is sitting and earning interest month after month, and then whisked out before the 0% rate expires on the card and is used to pay it off.
In theory, it seems like a good plan. If debt A, B & C is at 0% interest, why not take the money you would be paying on them and earn 4% (although our etrade is now down to 3.5%, grr) and then lump sum it at the end of the 0% period?
Now, first off… I have only a very general idea of how savings interest is calculated. I understand the basics of daily compound interest and the whole average daily balance business, but I am not sure if my simple understanding really allows me to work through the numbers in an accurate fashion.
Secondly, the payoff dates we’re talking here is not far away. $16k will be due in Oct, and it’s not like we have 16k just sitting around now, that could earn interest the entire time.
And third, there is the feeling you get when you see that balance go down down down each month. This is outside of the numbers and not really quantifiable, it just feels AWESOME. The equation I would have to work in my head is whether X amount in interest earned is really worth giving up that feeling of watching the debt go down. I am pretty geeky with my spreadsheets and looking to cut out paying interest finance charges and getting the numbers to work in the best possible manner… but I’m not sure I’m geeky enough to give up that “YES!” feeling when I make a payment. Especially if we’re talking piddly numbers here.
But you never know until you work the numbers, so, I’m going to have a go at it, and lordie lordie help me because I know this will probably be screwed up big-time!
Tomorrow: the number crunching results.
March 21st, 2008 at 3:58 pm
Oooo - I got a shout out!
Cool.
I just read (and commented) on the number crunching result post that comes after this (reading things out of order), but it sounds like you’re fully aware of the “psychological effects” argument bouncing around here. I suppose you can tweak your spreadsheet to give you a similar effect…. If you add in the savings columns, and subtract the growing savings balance from your total debt - you can still “watch” the debt number going down each month, even though the balances are still on the cards. This might also help prevent tapping into the savings for “emergencies.” Just a thought.