I paid off two credit cards in October 2015! BOOM! That should be the beginning and end of the post.
Okay, that’s it. I’m out of here. Thanks for coming out.
Well, since we are all here, let me tell you the details of paying off these credit cards. There are some pros and cons to the moves. It’s not all good, unfortunately.
Paid Off Credit Cards
I was able to pay off two credit card balances and avoid any further charges on those accounts. No more interest rate charges. No more waiting to pay off the balance. No more potential for late payment charges.
Card #1 – Visa with balance of $1,492.68, minimum monthly payment of $33.00, and interest rate of 14.2%
Card #2 – Mastercard with balance of $2,449.81, minimum monthly payment of $129.33, and interest rate of 12.2%
That’s a total of $3,942.49 in debt, paid off. Those cards make up a total of 4.9% of my total credit card debt. The monthly minimum payments make up a total of 10.2% of my total required payment per month.
Plain and simple here…I have less debt today than I did yesterday. I won’t be paying interest rate charges on almost $4,000 of debt. That’s huge!
I reduced my monthly minimum payment by $162.33. That reduces my required monthly burden on debt by a significant amount, 10.2% per month. In terms of budget, that means I have an extra $162 to pay towards principal amount on debt and not just interest payments.
I have this great feeling after paying off these cards. Euphoria is the word for it. This initial approach to paying off debt is the debt snowball method. That is when you list all of you debts by balance amount, with the lowest balance to be paid off first. The idea is that you pay off the lowest and easiest balance first, allowing you to build momentum for continued payments on debt.
I’ll go into debt pay down methods later, but the debt snowball has worked for me to start.
The downside to all this good news is where the money came from. I liquidated a 401k account that had about $6,500 in it. Unfortunately when you liquidate a retirement account, or take a distribution before retirement age, there are penalties. You have to pay the taxes on the money, if the money went into the account pre-tax, and you have to pay a 10% penalty.
Overall, I lost about 20% of the account balance, or $1,300. That hurts…a lot! I never like to lose money like that, but I couldn’t stand to see it sit there when I really need the money to pay down debt for today. I need to improve my financial situation today so I can actually make it to retirement.
On the plus side here (that silver lining thingy), the 401k account had a decent amount of free money in it. My employer had matched my contributions at times over the years. It’s a small company, so the matching was not consistent, but there was some. That means I only lost the free money and not the money I contributed.
I now have two credit cards paid off. That’s an amazing feeling! I don’t care what the balances were to start, they now read ZERO! I see the benefit of doing the debt snowball method, purely for the good feelings you get.
Yes, I had to liquidate my measly little 401k account to pay off the debt this month, and I can’t do that every month, but I have reduced my debt by almost $4,000, which is 4.9% of my total credit card debt. I also reduced my monthly minimum payment by $162, which is 10.2% of my total minimum payment requirement.
Now I have to keep the good times rolling. Well, I can’t really call it “good times” because of the massive debt still on the books, but it’s a little smaller today and that’s a great thing.
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