I need a numbers person to help with interest on a loan

[Daydreamer64]

I hope someone can help me figure out the interest between these two
items and to advise me on if one is a better choice to show up on our credit report verses the other.

This seems so simple but I'm not sure which way to go. We are not making headway with the credit cards and thought that we may be better off rolling the money into a different pay off method. I'm sure I'm over thinking this situation but it's a lot of money and I don't want to give any more away in interest then I have too.

I know that 16% is less then 18% and 16 sounds better but how does the interest accrument formula affect the overall amount of money paid out over the 6 year life of the loan assuming that we pay the card off in the same fashion and with the same speed as the loan.

Right now we have no money for emergencies at all, I mean none. We've used our credit cards for this reason and until this last year or so, we've been fine with paying them down and off but now we can't do that.

We thought that by moving this money, at least we would open up our credit card for emergencies again until we can get some kind of system going to put cash up.

The money is already on a credit card. The balance is $17,500.00. Currently the interest on this card is at 16% compounded daily.

We have a chance to move that money to a signature loan with 18% interest that, according to the loan officer, will not compound daily but is set up like a house or car note and will be a predetermined rate for the life of the loan until the interest is paid equally with the principle, which at that point, all money paid goes to the prin.

There are no early pay off fees if we choose to add extra to the prin. each month that we are able to do so. She stated that the interest over the time of the loan is almost the same pay out in the end. Was she correct?

The loan officer wants to make this deal so she is of course pushing the rate. It's not a great rate at all but we are overextended with moving and other unexpected emergencies.

We had great credit until we moved to NY and have not been able to sell the home in Atlanta, we've had several unexpected problems creep up this year, and we are now at the end of our money tree. The rate is not good but it's the only one we have been approved for as we've tried with a few places and were told we were too over extended. We know this but are trying to get it back together.

Will we pay more interest over 6 years on the cc with the daily compounded interest or with the loan over 6 years with the higher interest rate?

Currently interest varies with the market rates Plus some number but usually averages $244 a month for the interest payment alone, then we have to pay on the prin. too. Our monthly payment is around $400.00, with more then half going to the newly compounded interest each month.

Anyway, I thought that some of you math minded people might be able to guide me a bit.

TIA

 

[mom2aiden]

I'm unable to help you with the math. Maybe there are some calculators out there on the web to help you?

One suggestion I have is Dave Ramsey. Read "Total Money Makeover". Work his plan and you may not need to take out another loan. As it is really just moving money from one place to another, not paying it down. Dave gives you a plan to save a baby emergency fund and then work a "debt snowball" to pay everything off. The key is to come up with a written budget. my DH and I are having great success with his plan and have "found" way more money every month than I realized we had, just by budgeting and tracking expenses.

Sorry, if I didn't answer your original question though!

 

[john1928]

Since you're planning to pay off the amount you will need to cover all of the interest expense and some amount of principal every period.

In that case the difference in compounding daily adds some cost (paying interest on the interest during the month) but it's less than the additional cost of raising your interest rate 2%.

Additionally, if you pay off your credit cards with a different loan (which will cost more) there's a pretty good chance you'd end up using them again and adding to the problem rather than solving it...

 

[bettymae1121]

I'd be more worried about moving the CC debt to a signature loan, and then running up the CC's again.

Have you tried calling the credit card company and seeing if you can get that interest rate lowered? My highest rate is only at 9.9%, I have two others at 6.9%.

 

[5stljayhawks]

1st - I would second calling and see if you can get the interest rate down

2nd - Are you getting ANY zero% interest CC offers in the mail for 6 or 12 maybe even 15 months, I have used one that was untill paid off. Here are what the balance transfer fees maybe at 3,4,5% on 17.5K.
3% 525
4% 700
5% 875

The question then becomes, is the BTF less than what you would pay in interest for the same period?

3rd - can you tap a home equ like of credit that makes your interest tax deductible and probably has a lower rate? Check with your tax accountant.

4th- If you are in a major cash flow issue, either you can try to get a loan with the long term possible, making the payment smaller and opening up your CC, but you end up paying more in interest, or just pay the min on your CC(NOT what what I would recommend)

5th) There are also private investors/personal bankers that may let you borrow part or all at a lower interest rate as well. Just know about them, haven't used them. Or you could goto family for a loan set up with simple interest per year like 5%.

 

[stichy]

The signature loan is a good idea. But only if you will be able to keep yourself from spending more on credit cards. It gives you a set timeframe as to when the amount will be paid off. It won't look on the credit file like it is a debt consolidation loan. It could be for anything as far as someone looking at your credit file would know.

 

[vicki_c]

Additionally, if you pay off your credit cards with a different loan (which will cost more) there's a pretty good chance you'd end up using them again and adding to the problem rather than solving it...

I agree - I don't think this is a good idea unless you cut up all your credit cards. It's not a good idea to consolidate "to free up money on the credit card" even if it is supposed to be for emergencies only.

 

[jessicaerv]

Looks like with a 16% loan compounded daily over a 6 year period you will be paying $28235.15 in interest.

I'm assuming that the 18% loan would compound monthly, but your post did not state that. If so, the interest you would pay for this loan would be $33620.26. The woman pushing the loan is probably going to get a commission in fees. This is obviously not in your best interest.

I wish you luck. Sounds like you are stuck between a rock and a hard place.

 

[MrsPete]

You owe $17,500
Your card interest rate is 16%

If you make only minimum payments, you'll pay $281/month
for 23.4 years (281 payments).
Think about that. It'd be 2033 before you'd have this debt off your back. In that length of time we'll have gone through 5 more presidents and will be electing a 6th. I'll be retired. What changes will have happened in your life? That's enough to scare you into making more than the minimum payment, I'm sure!

And you say you're looking at paying this off 6 years (whether you stick with the credit card or use the bank loan):

If you stick with the credit card balance,
over 6 years you're going to make 72 payments of $379.61 each.
Your total payback will be 27,331.92
A gift of $9,831.92 to the credit card gods

If you change to the bank loan at 18% interest
your monthly payments will be $399.14
and your total payback will be $28,738.08
A gift of $11,238.08

You'll pay an extra $1406.16 if you go with the signature loan,
and I see no benefit to moving the loan to a different location.
You'd be spending more money, and you'd be making the same number of payments.

AND many, many people who get a consolidation loan /signature loan /whatever type of loan to pay off credit cards end up running the cards up again. If you think you'd be at all tempted to do that, this would be a horrible plan.


A better plan:

Leave the balance on the credit card at 16%
BUT pay an extra $100 each month.
This will raise your payment to $479.61,
but your total repayment will only be (did I just say only?) $23,980.50
and you'll only pay $6,507 total in interest, a savings of $3,324.92
and you'll shorten your repayment to 50 payments,
meaning you'll be out from under this in a tad over 4 years instead of 6 years.

Yeah, an extra $100/month when you're already stretched is tough, but you don't have good options here. Slice part of it off your grocery bill. Use your tax refund. Can you get a second job until this is paid off? Cut out movies or meals out. You'll never get ahead at this rate, and you need drastic action.


Someone else mentioned pulling equity out of your house. This is a horrible idea. You're stretched to the maximum, and you don't have an emergency cushion. Right now if you aren't able to pay your credit card bill, it's going to hurt your credit. If you pull money out of your house and can't pay the credit card bill, you could become homeless.


Regardless of what you choose to do, it goes without saying that you cannot add to the credit card balance. If you have an emergency, figure out another way. Do without something, wait a while, be creative. Pretend you don't have the credit card. What would you do in that case? The answer is usually not die or starve to death, so go with whatever you'd do if you had no credit card.

 

[disneygirl 17]

You owe $17,500
Your card interest rate is 16%

If you make only minimum payments, you'll pay $281/month
for 23.4 years (281 payments).
Think about that. It'd be 2033 before you'd have this debt off your back. In that length of time we'll have gone through 5 more presidents and will be electing a 6th. I'll be retired. What changes will have happened in your life? That's enough to scare you into making more than the minimum payment, I'm sure!

And you say you're looking at paying this off 6 years (whether you stick with the credit card or use the bank loan):

If you stick with the credit card balance,
over 6 years you're going to make 72 payments of $379.61 each.
Your total payback will be 27,331.92
A gift of $9,831.92 to the credit card gods

If you change to the bank loan at 18% interest
your monthly payments will be $399.14
and your total payback will be $28,738.08
A gift of $11,238.08

You'll pay an extra $1406.16 if you go with the signature loan,
and I see no benefit to moving the loan to a different location.
You'd be spending more money, and you'd be making the same number of payments.

AND many, many people who get a consolidation loan /signature loan /whatever type of loan to pay off credit cards end up running the cards up again. If you think you'd be at all tempted to do that, this would be a horrible plan.


A better plan:

Leave the balance on the credit card at 16%
BUT pay an extra $100 each month.
This will raise your payment to $479.61,
but your total repayment will only be (did I just say only?) $23,980.50
and you'll only pay $6,507 total in interest, a savings of $3,324.92
and you'll shorten your repayment to 50 payments,
meaning you'll be out from under this in a tad over 4 years instead of 6 years.

Yeah, an extra $100/month when you're already stretched is tough, but you don't have good options here. Slice part of it off your grocery bill. Use your tax refund. Can you get a second job until this is paid off? Cut out movies or meals out. You'll never get ahead at this rate, and you need drastic action.


Someone else mentioned pulling equity out of your house. This is a horrible idea. You're stretched to the maximum, and you don't have an emergency cushion. Right now if you aren't able to pay your credit card bill, it's going to hurt your credit. If you pull money out of your house and can't pay the credit card bill, you could become homeless.


Regardless of what you choose to do, it goes without saying that you cannot add to the credit card balance. If you have an emergency, figure out another way. Do without something, wait a while, be creative. Pretend you don't have the credit card. What would you do in that case? The answer is usually not die or starve to death, so go with whatever you'd do if you had no credit card.

I agree with this 100% - I used to do loans in a bank and I would never guide someone into a loan that wasn't in the best interest of the customer...that girl should be ashamed of herself.

 

[punkin]

Leave the balance on the credit card at 16%
BUT pay an extra $100 each month.
This will raise your payment to $479.61,
but your total repayment will only be (did I just say only?) $23,980.50
and you'll only pay $6,507 total in interest, a savings of $3,324.92
and you'll shorten your repayment to 50 payments,
meaning you'll be out from under this in a tad over 4 years instead of 6 years.

Yeah, an extra $100/month when you're already stretched is tough, but you don't have good options here. Slice part of it off your grocery bill. Use your tax refund. Can you get a second job until this is paid off? Cut out movies or meals out. You'll never get ahead at this rate, and you need drastic action.

If you can't do $100, do $50. Heck, even $10 per month will help. Whenever you have an extra penny, put it towards this card. Sell stuff on e-bay. Get a part time job. Sell that house in Atlanta-cut the price to the bare bone just so you have one less monthly payment (sorry if you already did this, but I might have missed it).

I generally disagree with Dave Ramsey on a lot of things, but if you have this kind of debt, his methods work well. There is no harm eating rice and beans (with an occasional cabbage ) until this is paid off. The faster you do this, the less money you will have to pay over all.

Good luck.

 

[Irin997]

There are some awesome calculators on bankrate.com. I just used their credit card payoff and loan payoff calculators and here is what I found...but simple logic helps too:

Credit Card at 16% interest rate:

If you pay around $400 fixed payment for the next 6 years, you will pay around $8500 in interest.

Loan at 18% interest rate:

If you pay around $400 fixed payment for the next 6 years, you will pay around $11,200 in interest.

Fixed is fixed regardless. The interest rate is the kicker here. Here are the calculators I used:

Credit Card:
http://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx

Loan:
http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx

 

[Daydreamer64]

Thanks for all of the advice.

We can't seem to get a lower rate as we haven't been able to sell the house in Georgia and are paying for the house in New York too where we are now living.

There is no equity in this house, the old one has a bit of equity that we may be able to look into.

I agree, we cannot use the card for anything after it's paid off or we will be in big trouble as we won't be able to make the payments.That card is going to be cut up, or maybe, I'll ask the cc company to lower the available credit to a more manageable level should it get used again. That way it's still usable for emergencies but not able to get out of hand.

We didn't blow off any of this money. I posted a few weeks ago about getting work and my situation. Many of you were very helpful. If you are interested enough to see what happened with our money situation, you can go back and read that thread.

Thanks for the information. We have lots to consider.

 

[Cheshire Figment]

The loan officer is lying to you. Credit Cards do not compound interest daily.

Basically the interest is computed as (Average Daily Balance * number of days in billing period * daily interest rate). or (ADB * monthly rate) or (ADB * annual rate divided by 12)

 

[brergnat]

Have you looked into renting out your house in Atlanta? You would at least be getting help with (if not all of) that mortgage payment.

 

[GreyGooseCosmo]

First of all - check out Bankrate (google for it). They have tons of calculators available to help you see just how much of your payment would be going to principal and how much interest you'll pay.

Another vote for Dave Ramsey. He has some great ideas about how to pay down debt.

Love,
Your friendly neighborhood bank Compliance Manager.

 

[MrsPete]

Have you looked into renting out your house in Atlanta? You would at least be getting help with (if not all of) that mortgage payment.

Or consider doing a rent-to-own option. Many people find that attractive because they don't have to come up with a downpayment. The "upside" for you is that it'll take care of your mortgage, and you won't have to worry about renters wrecking the house and leaving you with repair bills.