Credit Card Balances: Min Payment = How long to pay off?

[samclem]

I got a call from a close friend today. She and her husband have a lot of credit card debt piled up, and she's been taking advantage of the zero percent offers as she get them. She's got six cards at present, makes min payments of $750/mo total and that leaves them with no cushion after the bills are paid.

-- I'm not familiar with the payoff schedules of credit cards. If they are truly at zero percent, she makes the minimum payment, and she keeps transferring the balance to new cards, how long would it take to pay them off? Is it simply the balance divided by the payment = number of months to pay off?

-- She's concerned that the offers will stop and she'll be stuck with a high balance and having to pay a high credit card rate. So she wants to get an 8.6% home equity loan and pay off the cards. A 15 year loan would result in a monthly payment of approx $360/mo (approx 1/2 of what she now pays on the credit cards each month). She'd use the extra money to build up a small emergency fund, then she plans to make extra payments on the home equity loan to pay it off early.

- My gut tells me:
-- The credit card Russian Roulette thing is not a good long-term plan. These offers are getting more scarce. Getting the home equity loan and paying off the card is not a bad plan, even if 8.6% is a lot more than zero percent. Shop around for the best rate--credit union, etc.
-- With the "extra" cash each month, build up a modest emergency fund, then assure she's investing enough to get the full company match in the 401K available to them, then put all the extra toward paying off the principal on the HE loan.
-- Keep only one credit card, with a $1000 limit.
Most important: Before doing anything, be sure you are really going to commit to this. If the family is going to spend all the money each month, then stick with the zero interest credit cards--at least you'll be in a shallower hole.

Opinions sought!

 

[bbbamI]

I wouldn't put my home at risk for unsecured debt.

 

[laurence]

The last point is the most prudent. How did they get there in the first place? Medical bills or gadgets and designer clothes?

If they are ready to "Come to Jesus" on living at or below their means, then definitely the 15 year is the way to go. Tax deduction is gravy, too. Just make sure they get a fixed and not a HELOC!

Would they let you hold their credit cards for them so they can't run up new balances?

 

[jclarksnakes]

samclem,
...The core problem here is not the CC interest rate and weighing the merits of CC debt versus second mortgage versus HELOC will not fix the problem. The problem is that your friends spend more than they make. They need to stop buying anything other than beans and rice and start working 84 hours a week until they get out from under this problem. Hey, your friend sounds like a relative of mine. Their last name isn't Clark is it?
Jeff

 

[maddythebeagle]

Many credit cards require a 4% payback as the min. payment.The guidelines changed a few years back...Good news, bad news: credit card minimum payments rising (Page 1 of 2)

Many used to be 2%...Yes, the offers are getting more scarce...started last year....

 

[Goonie]

Here's a couple of CC calculators to use: What will it take to pay off my balance? and The true cost of paying the minimum

I used the first one when I was digging out of CC debt several years ago. And I also took advantage of a bunch of 0% balance transfer deals. It took about 2 years to to payoff about $47K.......a lot of belt tightening and doing without.....but I won the battle! Still use CC's, but always payoff in full now!

 

[Sue J]

Yes, the 0% offers are drying up. It used to be that you could get 15-18 month offers with no balance transfer fee. Now the offers are shorter, 6-12 months and most have a fee of 3%, although some do have a maximum of $100-$150 BT fee.

At the FatWallet forums I saw a link for a 12 month 0% with no BT fee - Associated Bank Visa Card The minimum payment of this card is 1.5% of the balance, much lower than many other cards.

Also see Citi® Home Rebate Card and

https://www.yournewvisa.com/lifespring/web/index-sales.html

and then there is this page No Balance Transfer Fee, 0% Intro APR Credit Cards but many of those are just 6 months.

The key to having a 0% intro rate card is to NOT use the card for anything else, just carry that balance and make the payments until it's time to move to another card. Some of these have rewards or points but usually purchases that get you rewards will have a high interest rate.

We carry a balance on a 0% card because we used one for part of our son's college expenses. I hate that we still have a balance, but I have managed to always transfer it to another card without any fees or interest.

We are currently doing really nicely on a debt snowball and the 0% credit card will be next after 2 small car loans.

 

[Helena]

I wouldn't put my home at risk for unsecured debt.

Ditto


If one can not pay off the credit card balance every month,
one should not be using the cc.

Americans need to quit buying things they can't afford.


~

 

[brewer12345]

Sam, I agree with the others. The spending problem needs to be fixed before the debt restructuring is done, otherwise they will end up with a big home equity loan plus credit cards they have run up again.

 

[LOL!]

Isn't the recent story on HELOCs this: banks are cancelling them, changing the rates and terms. One has to read the fine print on these babies nowadays. In a sense, one is betting that the CC interest rates will go higher than the HELOC interest rates even though they are lower now. But one is always allowed to jump from the frying pan into the fire.

 

[CitricAcid]

Pretty much a consensus here. If they built up all the debt in the first place, what will change now that they have gotten rid of all the credit card debt? I mean, they already pay ZERO interest so it is not like the compound interest is what is getting them, it is simply spending more than they earn. If they can prove that they can live within their means and their income level, then a HELOC would be reasonable to amortize the debt, but until that happens (or the debt was built on a one time emergency/health issue) I would suggest a change of lifestyle / spending habits.