Comments on: Paying Off Your Credit Cards — PSA via Mrs. Micah’s Dad

By: Sleepy-eyed Saturday Morning Roundup « Mrs Micah

Sleepy-eyed Saturday Morning Roundup « Mrs Micah — Sat, 20 Oct 2007 15:13:47 +0000

[...] of Personal Finance. That was a great post in itself. I should have mentioned it before. My Credit Card PSA was [...]

By: Welcome to Carnival of Personal Finance #122 at Mighty Bargain Hunter

Welcome to Carnival of Personal Finance #122 at Mighty Bargain Hunter — Mon, 15 Oct 2007 05:04:26 +0000

[...] Mrs. Micah makes clear a pronouncement: A credit card publicly serviced announcement! A CVS game from that slick Hustler Money: Prescription Round Robin! It sure does sound [...]

By: Andrew Stevens

Andrew Stevens — Fri, 12 Oct 2007 08:37:41 +0000

Brooke, we should all be thankful that interest exists. Without it, nobody would have any incentive to invest in the future. In general, I’m in favor of earning it, rather than paying it. (I do pay 2.6% on my student loan. I could afford to pay it off right now, but my most conservative investment, my savings account, is still paying 4.75%, so it doesn’t make a lot of sense to do so.)

By: Brooke

Brooke — Wed, 10 Oct 2007 20:45:38 +0000

Agh! This is such a dirty dirty trick. I’m so glad that my husband and I don’t have any credit cards anymore! If only no interest ever existed! Here’s to good luck for you getting rid of these punks that are getting all your interest money, Mrs. Micah.

By: Kyle @ Rather-Be-Shopping

Kyle @ Rather-Be-Shopping — Wed, 10 Oct 2007 19:39:26 +0000

Interesting post, I had no idea of this concept. Calling or writing the CC company seems like a must do!

By: Swamproot

Swamproot — Wed, 10 Oct 2007 17:52:48 +0000

I’m with you, Mrs. Micah. I can remember when $369 was a lot of money to me. Actually, although I make a fairly good living now, it’s STILL a lot of money to me, even if its just psychological.

That’s almost two weeks take home pay when you are close to minimum wage or a whole week’s worth at double minimum wage. It’s also the equivalent of over a whole year’s worth of your current alternative income goals met.

If you are focused on both squeezing every penny out of your budget that you possibly can and focused on reducing your debt, go for it. I don’t think psychology is going to trip you up at all.

By: mrsmicah

mrsmicah — Wed, 10 Oct 2007 11:09:49 +0000

I think the psychology of the debt snowball depends on the person. For those of us who get our little brains fixated on math, spreadsheets, and the like, paying it off by interest rate make sense. For those with fewer math skills I can see how the other might be psychologically easier.

In this case, of course, someone else is arranging the details of the snowball, which is why it can be easy to forget…

By: Andrew Stevens

Andrew Stevens — Wed, 10 Oct 2007 06:14:09 +0000

This is why some people criticize Ramsey’s debt snowball idea. After all, if they were on separate cards, he’d recommend paying down the $1500 balance first (since it’s smaller). I think Ramsey would reply A) that your example is a bit extreme since it’s got a 17% gap between the two balances, which isn’t going to happen terribly often in real life, B) $369 isn’t a very lot of money in the end (it’s about 6% of the entire debt), and C) paying off those small debts has an important psychological reinforcement effect (which doesn’t really apply in the example you gave, since you’re not going to consider either debt paid off until both are). I do not mean to imply that Ramsey wouldn’t give the same advice that you do – I’m sure he would, but he does give contrary advice in analogous situations.

Personally, I don’t think much of the debt snowball idea. I think paying off the highest interest rate first is the way to go, but a lot of people swear by it even though it doesn’t make mathematical sense (correctly pointing out that personal finance is more about psychology than mathematics).