Crummy Credit Line Switch and Bait

Posted by in Articles | 12 comments

Each month, I chip away at a little bit of principal on my Crummy Line of Credit. Little by little, the total balance due shrinks. However, the process has been slow-going and quite frustrating. The loan itself is a monster, and with an interest rate at almost 30% (29.99% to be exact) it’s disappointing to see how much interest I’ve paid over just this year alone: a whopping $1,557.98. I’m terrified to actually pull a Quickbooks report and find out how much I’ve paid on the life of this loan to date.

But……I’m happy to report I managed to secure a much, much lower interest loan and pay off more than HALF of the crummy line’s balance. Whoo hoo! Of course, I’m just moving half the total balance due to another financial institution that I have to pay as well, but at an incredibly low rate (and zero percent to start), I can focus on getting the crummy line’s balance paid off.

Here’s what I did; I paid off $3,500 of the remaining $7,626.77 using the new, low interest loan. Because I made a whopper of a payment, the financial institution offered me a “settlement” amount that is $1,480 LESS than the original loan balance for a total of $2,646.56 remaining. The $3,500 loan is zero percent interest for a year, then a low 7.5% fixed rate.

The remaining $2,646.56 is no longer generating interest charges, but it is generating a daily fee of $5.99. I agreed to make two more payments of $1,323.28 and will have this baby paid off by the end of October. Not too shabby compared with the 32 months it would have initially taken me and the interest I would have paid, $3,526. Yikes!

According to Credit Karma’s calculator, the $3,500 low interest loan will take approximately 10 months to pay off at a monthly payment of $350 and zero percent in interest if I stick to my plan of paying it off in 10 months. Here’s a quick comparison:

  • Total paid in fees on the remaining crummy line of credit: $359.40
  • Total amount of time until zero balance: 12 months
  • In contrast, if I had kept the crummy line of credit I would be paying $3,526 in interest over 32 months. Yuck.

For those visual learners out there, here’s a quick visual aid:

Crummy Line of Credit Balance Due

Crummy Line of Credit Balance Due

Lower Interest Rate Loan: Switch and Bait

Lower Interest Rate Loan: Switch and Bait

By calling the Crummy Line of Credit’s customer service and explaining that I wanted to make a large payment, I was able to negotiate a “settlement” amount. If I had been able to pay off the complete loan balance, I would have saved an additional $359.40. If I can pay if off sooner than expected, I save approximately $5.99 per day.

For now, I’m happy with the idea that this sucker will be completely paid in full and no longer generating balloon-interest payments.

Have you negotiated lower balances or “settlement” amounts to reduce a debt? What was your experience?

12 Comments

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  1. Everyday Tips

    Wow, great job!

    The credit card company should be put in jail for charging 30 percent in the first place. (Not sure you can put a company in jail, but I wish you could.)

    I hope everyone that has an outstanding credit card bill reads this and tries to take action themselves. This is a very helpful post that could make a difference to a lot of people.

  2. Little House

    @Everyday Tips
    Yes, I agree. Thirty percent is criminal! This was a line of credit from a few years ago that my husband signed up for. He didn’t really look at the interest rate at the time. Later, when I was making payments on it, I realized the whopper of a rate and cringed! At least now I have a plan and the company even offered to “settle” for less. (It sort of balances out the interest I’ve paid this year so far).

    Thanks for your comment!

  3. Budgeting in the Fun Stuff

    When we were in business with friends, we found out too late that they owed on a few lines of credit. We talked Dell down from $3400 to $2200 and paid out of our pocket. The business eventually crashed, we lost about $15,000 overall, and our ex-friend even kept the stupid computer we paid for…I am so glad that is all over! I still cringe at ourselves 3 1/2 years ago…

  4. Little House

    @Budgeting in the Fun Stuff
    I hate hearing about business ventures gone sour, especially when there are friendships ruined. At least you were able to reduce some of the debt. Now you can view it as a learning experience!

  5. Sarah

    I just wanted to comment – if you negotiated a small balance, remember that anything that the company has written off may be seen as INCOME for you and you might have to pay taxes on it. I’m sure you know that, but I wanted to tell you just in case you didn’t :)

  6. Money Reasons

    30% just blows me away…

    Kudos to you for getting that monkey off of your back!!!

  7. Khaleef @ KNS Financial

    I’m glad that you were able to secure a cheaper loan. Just be sure that the settlement doesn’t ding your credit! Also, as Sarah mentioned, be prepared to pay income taxes on the amount written off.

    Even still, I’m sure this is a huge relief to you!
    .-= Khaleef @ KNS Financial´s last blog ..Helping Those in Need is a Reflection of God’s Love! =-.

  8. Mr Credit Card

    If I got it correct, $5.99 a day equates to $2180.36 a year. Given a principal of $2646.56, that is equivalent to an interest rate of about 82%! So from ending uup paying 30% interest, they reduced your principal payments and jacked up the rate to 80+%!!

    Given that you are paying a lump sum settlement, I hope you negotiated in writing that they will not report any thing negative to the credit bureaus.
    .-= Mr Credit Card´s last blog ..How To Keep AA And United Miles With A No Annual Fee Credit Card =-.

  9. CD Bank Rates

    Congrats for negotiating such a good price to pay off your debt! I know how much interest can built up too, I had a similar situation with my credit card and was able to pay it off in two installments with my tax return :) thanks for sharing the tips and making people realize how much interests really cost you….

  10. Budgeting in the Fun Stuff

    @Little House We were lucky and lost $15,000 in cash…no debt…just $15,000 that we never saw again (every savings bond our grandparents ever gave us and $10,000 of savings). Well, we did get to write off the business loss and technically recuperated $3000 over 3 years, so we were “only” out $12,000 long-term. I’m thankful we didn’t go into debt and that it wasn’t a close friendship that was ruined.

  11. Little House

    @Khaleef @ KNS Financial
    That’s a good point. I’ll have to make sure to ask for a letter from the company making sure they report it as a “positive” item.

    @Sarah – Thanks for that tip. It wasn’t anything I would have thought of!

    @Mr. Credit Card – You’re right, the daily rate ended up being higher than the original APR. However, if I can pay if off before the final payment date, I can save a few bucks!

  12. Nicole

    Wow… those are some crazy interest rates. Good luck paying off the rest!
    .-= Nicole´s last blog ..Secret Confessions of Pseudonymous Bloggers =-.

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