I did something that probably falls under the category of “insane.” I pulled up all of my credit card statements for the past two years (thank goodness for online statements!), and I opened a new Excel spreadsheet. And I started entering all of the purchases I’d made on my credit card since the last time I had a $0 balance (March 4th, 2006).
The point of this exercise was not just to look at what exactly the purchases were that got me into credit card debt, although that was certainly something that I was able to do. But my real goal was to see which of these purchases were the ones still sitting on the credit card. What was is it that I’m paying off exactly, when I make a payment to the credit card?
So after putting in all of the purchases, I put all of the finances charges I’ve accrued. I’ve decided that in my mental account of what’s on my credit card, the interest goes last. I don’t even begin paying off the interest until I’ve paid off all the purchases. This makes figuring out what I’m paying off a lot easier.
After listing all of the purchases and finance charges, I started subtracting all of the payments I’ve made to the credit card since I started carrying a balance. After a purchase was “paid off,” I would put a strike through it. As I began doing this, I decided to estimate where I would end up. What am I paying off right now?
My guess was that if I were to make another payment to my credit card today, it would go toward something I bought in my big spender month of July, 2006. And when I finished moving down the list and subtracting payments and crossing off the paid off purchases… I ended up at a purchase from July 23rd, 2006.
Some pretty good estimation skills I’ve got there, huh?
So it turns out that when I make my next payment to my credit card, it will work to pay off my digital camera. The one I’ve had for over a year. The one I bought impulsively to make myself feel better when I dropped and broke my camcorder.
I also found that I have racked up $362.77 in interest so far. Ew.
I can’t wait until the day I cross off the last purchase on this list. Actually, the day I cross off the last finance charge on the list and can say “There. I’ve got a zero balance again!” It will be so nice to not have the purchases of last July still hanging over my head.
In the mean time, I’m going to try and find some credit cards with 0% balance transfer offers. Because these finance charges? Just not cool.
I had been thinking about trying this out for awhile, but never finished messing with the data because it felt way overwhelming. After reading this post, I got quicken and excel going and made a best guess formula to figure it out. Now I can sit and remember all this purchases from 2005 that I’m still paying on. Debt sucks.
I don’t know how bad your credit card situation is, but in my experience credit cards with 0% offers usually charge a transfer fee and have a short period of time the 0% is good for. It’s better to find a lower fixed rate with no transfer fees for the life of the loan.
For example, I transferred over $3K to a 3.9% card with no balance transfers for the life of the loan. Granted I’m paying $150-200 a month (my choice) toward that card, but interest is only $5-6 a month. If I get into a crunch I can pay less.
Just a thought….
Good advice, Meari, I was going to suggest the same thing but you beat me to it! It definetely depends how quickly you think you can pay off the debt. If you can’t pay it off within the 0% interest period, go with the 3.9% (or similar) card for the life of the loan.
I knew if I posted about looking for 0% balance transfer offers, I’d get some responses! π Of course, I’m only looking at offers with no balance transfer fee – there aren’t as many of them out there right now, but they do still exist. I’m getting charged about $25 in interest every month, so even if I just get 0% for 6 months, that’s $150 in savings, and $150 more to go toward my debt.
Also I’m hoping that whatever card I get has an interest rate lower than the one on my current card (17%), so that it’s better to leave the balance on the new card even after the promotional period is done.
Nothing’s set in stone yet, though, I’m still looking around! Thanks for the advice – 4% for the life of the balance would be good, too!
I was going to comment before about your credit card debt, and whether you were able to get a 0% BT card… but I assumed either it was already on a 0% card or that you weren’t able to qualify for a better card. If this isn’t the case, I’d get going on an application asap π With my mediocre credit (I’m 20), I recently was able to get a $2,000 no fee 0% BT card which I took and put in a savings account.
hi stephanie
i just wanted to comment quick and offer a tip for you.
its really refreshing to see someone taking there credit situation as serious and almost scientific as you are. more people really should.
TIP: if you do role your balances to a zero percent card you may not want to close the old accounts. closing old accounts actually can lower your fico score. length of time of an account showing on a bureau is very important. replacing old cards with new ones and then closing the older accounts can hurt you. keep the old accounts…just dont use them.
hope that helps. great post!
What a great idea, I’ll definitely give the spreadsheet a go, it may even help keep spending down when you actually have to record the spending you do! Keep up the good blog.
Very good idea. This way you can have a real situation of your credit balance and do some research about hidden charges.
Some situation you got there π Just go get another BT cards asap.. Meanwhile if you could, I suggest you allocate as much as you can so those debts would pay off immediately.. Huges monthly interest really is not something good to have..
Thanks for a very informative post.
I’d just like to add that our customers have had great success by applying the snow-ball method to any bad debt.
The idea is simply, yet really effective…
You start of by making a list of all your debts with the lowest amount owed on top. You then put ALL surplus cash you have available into paying back the smallest debt first. Once this has bee settled in full you then move onto the next debt in the list, and so on until all your debts are paid off.
It’s called the snow-ball method because once the smallest debt is paid the extra money you will then have gets added onto the next balance. The effect is like a snow-ball.
Really simple and yet anyone in debt can easily apply it.
Regards
Rob.
If credit cards are the greatest source of bad debt, auto loans are a close second. You are upside down on the loan the second you drive off the dealership’s lot and it’s downhill from there. Too many people shrug off a car payment as a necessary evil.
I believe the best lesson from this credit card history exercise is to learn about bad credit habits that we can correct. She learned that she was accruing tons of fees and now she will pay on time and avoid getting cash advances to try and save on those expensive fees. She can also identify other areas in which some money can be saved such as eating out, shopping, and other unnecessary expenses. Going over your past expenses is actually recommend in several personal finance websites to take a look at the big chunks of money that go into some categories. Any one who is evaluating their finances must go through this and learn from the mistakes.
@john cummuta:
You’re right, except for one detail: I was never hit with any fees, just interest charges from carrying the balance itself. Thank god I never took any cash advances!
This is such a great idea Steph. In this way you can truck down all your purchases and you’ll know which of your purchase are you currently paying.
You are lucky about the cash advances. They can have huge interest attached, sometimes as high as 30 or 40%. Maybe you should look for a card with a low balance transfer rate and try and pay it off at a lower interest rate?
@Student Money: this post is more than two years old. If you read the more recent posts, you will see that I did transfer the balance and then paid it off, more than a year ago. Eventually, I was able to completely eliminate the debt in this entry, in no small part due to this spreadsheet. This crazy spreadsheet ended up becoming a huge motivator in terms of getting my debt paid off.
I definitely agree with jimma, credit cards and loans can really put you on bad debt. I only use it for items with 0% interest and is payable to 12 months. That way, it really doesnβt hurt once budget especially when you have a lot of bills to consider like home mortgage, car insurance and others.
If you find yourself in need of some credit card debt help, allow me to introduce to you an extremely simple method of saving just pennies, on a daily basis, and in doing so amassing sufficient savings to make significant payments on your credit card debt.