I don't see why your only options are HELOC or BK. HELOC would definitely be best but if you can afford the minimum payments now then you can get out of this. Cut out cable and/or internet and use that money to start paying extra on highest rate card. How much extra income do you have to spend on paying extra each month?

If you can destroy the CC's that you'll be paying off using your parents equity from a HELOC it might be something to do. Rather then a HELOC you might want to get a fixed 2nd mortgage or have your parents look into it. Rates are around 9% for a 30 year fixed, 8.4% depending on credit score and LTV (loan to value) - obviously you would plan on paying this off within the first 7 years not the whole 30 years. People I know that have done this usualy find themselves with more debt while paying the HELOC or Fixed 2nd off, because they needed the money and used the CC's again. They end up filing BK in the long run. It's important that you do not use these CC's unless it's an emergency. btw filing ch.7 only destroys your credit for 1 to 2 years. You can buy a home the day of although your rate will be around 12%, still not bad. At year two you can get a FHA mortgage loan that is fixed for 30 years that have better then conforming rates which today would be around 6.125%. Don't think that if you file BK your credit will be shot for 4+ years. Usually the 1st year after you file your score should be in the mid 600's, that's if you don't have any lates afterwards.

mike841 said:Assuming the HELOC route... even though we have 0% on 12k until 7/07 and 3.9% lifetime on 15k, would it make sense to put all the debt under the HELOC and make just one payment, or put the high interest debt under the HELOC, try to pay off the 0% before 7/07 and keep paying the 3.9% minimum payments forever like another poster suggested...?

you can have your parents write off the interest on the HELOC, you can't do that on the credit cards. Can you afford to pay what you are saying? It would probably help you if you can, but most can't do both. You don't want to pay 3.9% forever do you? You're student loan sounds like it's in that rate range. The only thing bad about a HELOC it's tied to Prime and prime now is 8.5% so if it goes up your monthly payments goes up, goes down your monthly payment goes down. I think last year prime was at 6%'ish.

Yes it definitely helps, I am learning a lot and am very appreciative for all of the good advice - very valuable to have a lot of good knowledge to evaluate our plan going forward to become free from credit card debt.

Do what you can on your own, before involving your parents.

Mike841 said:

_________________________________________________________
Our bills each month are as follows:

Auto loans - $650 (both up in 7/08)
Auto/renter insurance - $280
Student loans (after recent consolidation) - $325
Credit card minimum payments - $1115
Rent - $1350 (been here 4 years, rent hasnt gone up and never will per the lease, landlord is basically non-existant)
Electric/water - $150-$200 depending on season
Cable/cel/internet - $200
Gas - $75 per week (will begin carpooling in fall/winter reducing this number)
Groceries - $200 per month

Total takehome pay is $5400 after taxes per month
_______________________________________________________________

Find a way to increase your income and decrease your expenses. I feel this is even more important than lowering interest rates.

A few suggestions:

1. Contact your lender and defer your student loans due to hardship. If you consolidated before 7/1/2006 that rates should be very low.
2. Sell at least one car. You can still get reliable transportation for no more than the equity you pull from the sale. This may also lower your insurance costs. I know it’s a bitter pill. Your finance costs are relatively low, but you still are paying $300-$350/month that could be reducing high finance charges on you CC. That is money market interest on $90,000.
3. Get a part-time job.

BK and HELOC are definitely not your only alternatives. Good Luck!

mst3k said:I ran your example in Excel. Paying off the higher rate first causes your total debt to be paid off sooner than paying off the lower rate first. Also, I don't know of a single credit card that lets you pay less than the accrued interest. So you numbers disprove your point and are contrived.

And I think that is really the point if you think about it. Sure you can come up with hypothetical scenarios where one thing might be better than the other but in the end you need to run the numbers for your own case and figure out which one is best. However, even if you find a highly contrived example, I still dispute your statement that paying off the highest rate is *not usually* the best option. Even when you fudged the numbers it didn't work out so I'm betting those corner cases are pretty rare.

I went to your link. It supplied no factual evidence that this was the best method. In fact it didn't claim to be the fastest (least costly) method to repay debt at all. Really it said that there is a pscyhological benefit to retiring a debt so paying off the smallest debt gets you to the first debt retirement the quickest. I won't dispute that.

The fact remains with the numbers you gave me in my simulation your method cost over $800 extra.

From Wikipedia:
"Snowballing is also recommended by many other financial websites such as The Motley Fool, Money Saving Expert.com and What's The Cost (Where a calculator can show the savings you'll make by snowballing in the correct order)."

"In theory, by the time the final debts are reached, the snowball will be "rolling" quickly as it has picked up a lot of financial mass. Hence, larger debts will be paid off faster."

You are correct... I should not have said "usually". What I should have said is that it's not always better to pay the highest interest card first. There are many times when paying the smaller debt first is better.

Again, rather then explain the math I'll say that it makes sense to pay off the small debts (as long as it can be done very quickly) as it eliminates those "minimum" payments your making so that all of that money can be added to what you can afford to pay toward the larger debts.

It's difficult to explain with numbers as credit cards are different then most simple loans. The credit card companies allow you to pay the minimum as they allows the interest to compound. They also reduce this minimum payment so that their interest lasts even longer. But if the amount is low enough, just kill the debt on that card and get rid of that minimum payment. Here is why that works... because you did it _very_ quickly and your now going to apply all of that "new" money toward that higher rate card. Again, this won't work if you take 10 months to pay off $1000 (that got you into debt to begin with). It does work if you only took, say... 1-2 months to pay off that small debt. The interest accumulated on the larger interest card was not much more over those 2 months and now you have more money to apply to that larger rate card.

tcope,

You have given us numbers and multiple have run them. We have paid off slow, we have paid off fast. We've let you set the scenario anyway you want including highly probably scenarios that you would think in your favor. Above is a 1 month low interest pay off. I did a 2 and 3 month payoff. Someone else did a 9 month payoff. All disproved your scenario.

The fact that you "don't want to get into the math" while all of us are more than willing to calculate the hard numbers is you have no mathematical basis so you put us down by saying it is too hard for us to understand. The fact is that is a psychological strategy and maybe in a few highly contrived examples it is a mathematical strategy but it is so rare that you can't even come up with one.

The only way this "pay off the smallest balance first" can help is for people who can already barely make the minimum payments and are frequently paying late charges. Getting rid of one extra minimum payment decreases the likelihood of more late charges on that account and other accounts, and might actually save some money (in fact if the interest rates are closer than this 5% vs. 25% example, its almost guaranteed to even if it just saves one late payment fee). Yeah, its rediculous, since obviously you can just pay on time and avoid the late charages anyway, but we're not talking about FWF people here.

One thought how OP might strategize his repayments to gain more low apr cards quicker:

Pay down each card in turn to 79 or 89% credit utilized, starting from the highest apr card and working on the next highest apr cards in turn.

None of us know exactly how credit scores and risks are calculated when an issuer in deciding whether to issue additional credit, but it seems true they care a lot about credit utilization, both in aggregate as well as per card. As far as I know, the risk attached to high credit utilization is not continuous, but grouped. Some say less < 50, 70, 80, 90, > 90. I'd guess issuers vary some one from another. But pretty clearly, > 90 is quite a bit different than 89, and it is likely that 79 is quite a bit different than 81.

And actually, a slight revision of this strategy can be entertained (but always starting from the highest apr card and working downward):

Knock each card to 89%;
Knock each card to 79%;
Knock each card to 74%;
... ...

If this strategy is to work, there MUST not be any dings on the credit report other than the balances. No late payments, charge-offs, negotiated credits etc. Each credit card should be in one person's name *only*, without authorized users. That way your total debt on an application is less, but you can usually still report household income.

workindev said:mike841 said:Our bills each month are as follows:

Auto loans - $650 (both up in 7/08)
Auto/renter insurance - $280
Student loans (after recent consolidation) - $325
Credit card minimum payments - $1115
Rent - $1350 (been here 4 years, rent hasnt gone up and never will per the lease, landlord is basically non-existant)
Electric/water - $150-$200 depending on season
Cable/cel/internet - $200
Gas - $75 per week (will begin carpooling in fall/winter reducing this number)
Groceries - $200 per month

Total takehome pay is $5400 after taxes per monthYou would save $500+ per month if you sold at least one of the cars, canceled cable/cell phone/internet, and strictly budgeted groceries, gas, and other discretionary expenses. $500/month more would go a long way towards credit balances on top of the minimum payments.Yeah, I looked at this list and choked. Costs vary by geography, family size, etc, but my family in comparison:

Auto loans - 0
Auto Insurance - 80
Student loans - 0
CC interest - 0
Mortgage - 0
Electric - 60 - 80
Cable/cell/internet - 50
Gas - 20 per week
Groceries - 250

Some of this he has little control over, but his discretionaries are outlandish, considering that all he has to his name is a pile of debt and a couple of upside down gas guzzlers.