Internal Dilemma - If my credit card wasn’t my highest interest debt… what would I do?
All this pondering about moving balances and trying to pay the least amount of interest as possible on my remaining credit card debt made me realize that depending on which option I theoretically have on the table actually pans out, my credit card debt may no longer be my highest interest debt.
I have been telling myself all this time that I was attacking my debt from highest interest to lowest because that made mathematical sense. Which is true. But also, my credit card debt is the debt that vexes me the most. So paying it off first gives me some much needed emotional satisfaction.
If I transfer the balance to the 0% interest for 12 months card, I won’t have to think about this issue any longer. The whole point of that is to pay it off as quickly as possible while it is not accruing interest, because after the 12 months go by the interest rate on that card will be higher than my current Capital One interest rate. So I’ll continue to throw all my money at the credit card debt and I can continue on as before.
The tricky place comes if that plan doesn’t work out and I end up transferring the balance to a 2.99% fixed for the life of the balance rate. Then the credit card debt becomes my lowest interest debt, and really, according to the “plan” I should start snowflaking everything to my spouse’s student loan. But… emotionally, I really don’t want to do that. I want the credit card debt to be done, not prolonged for several years while I pay off other debts that vex me (slightly) less.
I tried to find a calculator in which I could determine how much money in interest I would be costing myself by doing a hybrid kind of theory where I paid the credit card first at 2.99% and *then* ordered the other debts by interest order, but I couldn’t find one. My car loan balance is lower than my credit card so using a straight “lowest balance” vs “interest order” calculation didn’t quite work. I did do a quick and dirty calculation with the snowball calculator excluding my car loan altogether, and determined paying a 2.99% interest credit card off before the student loans would cost me an additional $902 in interest. That is somewhat high however, because using balance order, it switches to paying off my student loan next instead of my spouse’s, and because I was excluding the car loan, once the car is paid off in March 2009 my snowballing power would increase by ~$230 and that is also excluded from the calculation. So it was quick, and very dirty, but does give at least a small idea of what would happen. I may analyze this a lot further and brush up on my excel skills if this 2.99% balance transfer actually comes to pass. And I need to take the tax ramifications into account (the student loans do provide a small benefit when it comes time to file our taxes) as well. The tax advantage is not enough to keep the student loans indefinitely of course but it may be enough to sway this argument towards paying other debt first depending on how close the numbers actually are.
Numbers. I do like playing with them. I guess I need to decide how much my emotional satisfaction is worth. I’m not sure it is worth $902. But I don’t know what my “emotional satisfaction” cutoff actually is, dollar wise. I hope in this case I don’t actually have to find out.
~J
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July 29th, 2007 at 5:15 pm
To throw an additional bunch of numbers at you, Student Loan interest is usually tax deductible. So, depending on your tax situation, it may be beneficial to pay interest on the student loans, because that interested will be deductible from your taxable income.
July 29th, 2007 at 6:42 pm
yeah i get into that later. i dislike thinking about taxes. lol