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Started By
Message
Option 1, 2 or 3
Posted on 1/22/10 at 4:02 pm
Posted on 1/22/10 at 4:02 pm
Sister has $8,000 in credit card debt. Her interest rate is 16%. She now has the money to pay it off. Her question she asked me was to do one of three things...
1) pay it off to just eliminate it
OR
2) pay half off to reduce the monthly note (and total debt) and pay off at the end of this year and keep the rest in the bank and/or invest
OR
3) invest the money she would pay of the CC debt with and continue to pay the low monthly note and pay off completely at the end of this year.
I suggested #2 (fire away if needed)
I am no financial guru, but I told her I would ask around for her.
What says the TD Money Talkers?
1) pay it off to just eliminate it
OR
2) pay half off to reduce the monthly note (and total debt) and pay off at the end of this year and keep the rest in the bank and/or invest
OR
3) invest the money she would pay of the CC debt with and continue to pay the low monthly note and pay off completely at the end of this year.
I suggested #2 (fire away if needed)
I am no financial guru, but I told her I would ask around for her.
What says the TD Money Talkers?
4
Posted on 1/22/10 at 4:08 pm to TigerKAPs
Option 1 and it's not even arguable.
If you can find me an investment that can make 16%, let me know and we can both become VERY rich men.
If you can find me an investment that can make 16%, let me know and we can both become VERY rich men.
Posted on 1/22/10 at 4:10 pm to TheHiddenFlask
Very true. Like I said, I'm no financial guru, so I did not look at it that way.
Posted on 1/22/10 at 4:24 pm to TheHiddenFlask
quote:
If you can find me an investment that can make 16%, let me know and we can both become VERY rich men.
What are we smoking, and when will we stop?
Posted on 1/22/10 at 4:51 pm to TigerKAPs
option 1
/thread
/thread
Posted on 1/22/10 at 5:26 pm to TigerKAPs
As others have said, definitely option 1. Someone else already explained why 3 is not good but occasionally someone will say that it's better to keep a little in the bank for emergencies, and therefore option 2 is better.
Usually, this is not so though there are exceptions. The reason why is that if you ever do have an emergency and need the money, you can charge it right back up on the credit card. Obviously you don't want to do this, but paying half and keeping the rest in a bank account is exactly the same thing as paying it all of today, and immediately getting a fee-free cash advance, isn't it? Better to not do that advance unless it is truly needed.
The exception is if she cannot in fact just do a cash advance to get the money. Then she may be stuck.
A final thought - she ought to try calling the card issuer to ask for a reduction. If her payments are current she just may get it, and it never hurts to ask.
Usually, this is not so though there are exceptions. The reason why is that if you ever do have an emergency and need the money, you can charge it right back up on the credit card. Obviously you don't want to do this, but paying half and keeping the rest in a bank account is exactly the same thing as paying it all of today, and immediately getting a fee-free cash advance, isn't it? Better to not do that advance unless it is truly needed.
The exception is if she cannot in fact just do a cash advance to get the money. Then she may be stuck.
A final thought - she ought to try calling the card issuer to ask for a reduction. If her payments are current she just may get it, and it never hurts to ask.
Posted on 1/22/10 at 7:03 pm to foshizzle
How about a 4th option? If she takes the money to her bank and borrows against it, the interest rate on the loan would be 2-3% more than the rate she would earn on the money. Her bank should have no problem with this because they have virtually no risk. With interest rates on savings or CDs at approx 2%, her new rate would be around 5%. She would use the money from the bank loan to pay off the credit card and decrease her interest cost by 2/3, not counting the interest she would earn on her money. When the bank loan is paid off, she still has her 8,000.
If she uses her 8,000 to pay off the card but has the discipline to put the money currently being paid back into savings, Option #1 is definitely best. If not, the bank loan becomes a type of "forced" savings. Just a thought.
If she uses her 8,000 to pay off the card but has the discipline to put the money currently being paid back into savings, Option #1 is definitely best. If not, the bank loan becomes a type of "forced" savings. Just a thought.
Posted on 1/22/10 at 7:27 pm to TigerKAPs
PAYOFF IMMEDIATELY! No investment will give you a guranteed 16% return on your investment.
Posted on 1/22/10 at 9:17 pm to djmicrobe
Option 1. I'd look at it like this. She is basically losing around 14 percent by not paying it off.
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