Not logged in? Join one of the largest Debt Reduction Forums on the Internet! Join Now!   Latest blog post: John Oliver Talks About Student Debt

Advertisments:


Useful Links:

FTC Debt Reduction Advice
FTC Money Matters Website
National Foundation For Credit Counselling
Debt Reduction UK
MyMoney.Gov

Which is better compounding interest credit cards or simple interest personal loans?

Credit Card Debt discussions & tips

Which is better compounding interest credit cards or simple interest personal loans?

Postby dov » Wed Sep 28, 2011 7:20 pm

I have $1500 at 14.9% (assume making minimum payment $50 per month) and $1800 at 23.99% (making a minimum of $50 payment) both of those are the APR for lines of credit. In the interest of paying less overall on bills, I am assessing the viability of consolidating to a simple interest personal loan at 30%. Assuming $300 is spent per month to pay debts and the two minimum conditions are met but I optimize my payments to minimize paid interest, would I spend more money paying the two independent, compounded interest debts or a single $3300 personal loan on simple interest with $300 monthly payments?
dov
 
Posts: 902
Joined: Tue Mar 22, 2011 6:34 pm

Which is better compounding interest credit cards or simple interest personal loans?

Postby solomon83 » Wed Sep 28, 2011 7:27 pm

No matter how you slice it, what you're considering will be more expensive by far. In effect you will be doubling the APR on your $1500 @ 14.9% debt, and increasing the APR on your $1800 @ 24% debt as well.

Unless you can find a loan with a *lower* APR, leave them alone and put that $300/month directly to work. Write a check for the minimum payment to the 14.9% card, and put the rest on the 24% card so you can get that high interest debt out of the way as fast as possible.
solomon83
 
Posts: 895
Joined: Mon Mar 21, 2011 10:17 am

Which is better compounding interest credit cards or simple interest personal loans?

Postby cullo66 » Wed Sep 28, 2011 7:33 pm

you are sort of comparing apples to oranges if you pay $100 combined on your cc debt, but $300 (including interest? before interest? ) on the loan.

but still, the cc debt is cheaper on a level playing field. 24% grows to 27% APR and the 15% equates to 16% APR. <<== both are less than the 30%

so keep doing $50 on the 15% for now, and pay the $250 on the 24% until that loan is gone, then finish off the 15%.

Can you get a $3500 loan from your parents at about 6% and pay them back $300 x 12 months?? You would save a small fortune.
cullo66
 
Posts: 812
Joined: Mon Mar 21, 2011 6:28 am

Which is better compounding interest credit cards or simple interest personal loans?

Postby reilly » Wed Sep 28, 2011 7:45 pm

You are making this much more complicated than it needs to be:

"I have $1500 at 14.9% and $1800 at 23.99%
I am assessing the viability of consolidating to a simple interest personal loan at 30%."

How could you ever think that consolidating a 14.9% loan and a 23.99% loan into a 30% loan is a good thing? All you are doing is making your interest rate soar.

"Assuming $300 is spent per month to pay debts"

Ok, you've got $3300 in debt, and you have $300 per month to pay on them? Well, that gives you a total of around 11 months to pay them off. Why bother with anything about refinancing, consolidating, or doing something else to change it up. Just bust your hump and get them paid off, then the interest rate won't make a difference.

"and the two minimum conditions are met but I optimize my payments to minimize paid interest, would I spend more money paying the two independent, compounded interest debts or a single $3300 personal loan on simple interest with $300 monthly payments?"

Ok, here's the simplified math for you:

$1500 at 14.9%, paying $250 per month will take 6 months to pay off. You'll pay $111 in interest during those 6 months. $1800 at 23.99%, paying $50 for the first 6 months, then $300 for the next will take 11 months to pay off. You'll pay $395 in interest during those 11 months. The total interest you'll pay is $506.

$3300 at 30%, paying $300 per month will take 11 months to pay off. You'll pay $907 in interest during those 11 months.

Of course, this doesn't factor in the interest being added to your account each month, or the balance going down each month as you make payments, but it gives you an idea.
reilly
 
Posts: 835
Joined: Tue Mar 22, 2011 12:06 am


Return to Credit Card Debt

 


  • Related topics
    Replies
    Views
    Last post