I’m heading down the home stretch toward paying off our debt. I see the finish line just around the bend and am bursting with joy! I’m now at the point where I don’t want to pace myself, I want to sprint as fast as I can so that I can feel the relief of dumping that jockey off my back. So far, in our race to pay off debt, we have managed to pay our credit cards to zero, refinance our car loan to a lower APR, and are planning to open a Roth IRA at the end of this month. But of course, before I can coast to that glorious finish line, I have one more hurdle I must conquer: pay off our line of credit that is currently at a ridiculous APR.
The total due on our line of credit is $8,100. At our 29.99% APR, our monthly finance charges are a whopping $212 a month! Each month, I try to pay more than the $225 minimum payment since only $14 would be applied towards the principal. Most months I’ve been able to pay between $275 and $300 which whittles that bill down a few dollars more. After reading Money Funk’s success story with Lending Tree, I decided to give Lending Tree a go. After a week of waiting for offers to roll in, a couple of the inital offers are still pending. Though our credit scores are now in the low 700’s, our total credit history is pretty limited. As the days go by, I’m beginning to lose a little hope on those lower APR offers coming to fruition. That means I need to come up with a new strategy for paying down debt from this absurd loan:
- Apply the savings on our refinanced car loan, $156 per month, towards this loan
- Continue paying $275 – $300 per month
- Revise my budget and see if I can squeeze out another $100 a month towards this loan
Based on CreditKarma.com’s Debt Repayment Calculator, if I was able to pay $556 a month on this loan, it would take me 18 months to pay it off. This would reduce my interest by a few thousand dollars than if I just paid the $300 per month towards this loan. See below for a quick comparison:
What’s most absurd is if I wasn’t savvy about how interest and principal on debt work, and just paid the monthly minimum I would end up paying more in interest than I would for the total due on the loan. Thanks again to online calculators, I can see that if I paid only the minimum $225 a month I would end up paying $8,065 in principal and $12,860 in interest! That’s highway robbery if you ask me!
What would you suggest I do? What other options do I have that I may not see at first glance? Have you had similar experiences with outrageous finance charges?