Card Credit Debt Reduction Strategy
Q: I am a Quicken 4.0 user who is wrestling to pay off student loans, an auto loan, and and credit card debt on two cards (at different interest rates). Is there a software program--embedded in Quicken, MYM, or Money-- which will help me figure out the best strategy for paying off these loans. I have some cash to pay down this debt, but since my loans have different interest rate and terms, I am confused about which--and how much--to pay off first. What about Shareware programs? Is there any good shareware which can help me sort this out?
A: There is a good shareware program called Debt Analyzer for Windows: The prime locations for new releases are as follows: CompuServe: Library 4 of the UKSHARE forum Internet: World Wide Web: http://www.smartcode.com/iss FTP Site: ftp://ftp.smartcode.com BBS: Rocky Mountain Software (801) 963-8721 Library 5 (F 5) Unfortunately there is no hook into Quicken to get information. You enter your loans, balances and rates. Debt Analyzer can then calculate out a payment schedule maximizing on different things like "highest balance first", "highest interest rate first", etc. You can print out the debt repayment report then automate the payments in Quicken. If you stick to the schedule and don't incurr more debt you can save lots of $$$ and/or time til debt free. Of course my tack is to merely follow the low interest credit card offers and mark my financial calendar when it's time to move my long term debt. Usually the current card will extend the offer rather than see you jump ship. Of course I have either enough credit or a small enough debt to be able to consolidate my debt under one card. Then I pay as much as I can on that card. I'm not a spokesman for this shareware and I've only nominally used it but the stategy seems sound and it was the only real debt reduction shareware that I saw. Here's some more info from the help file: There are two main methods supported for helping you rid yourself of debt. These are called the Debt Elimination Schedule and Loan Consolidation. Each of these terms and the methods they employ are described below. Please note that there are two important rules that should be followed to make your plan work for you. They are 1. Stick to the plan and 2. Do not acquire more debt! Violations of either one of these rules will most likely make your plan invalid and will require a new plan to be made. Debt Elimination Schedule The Debt Elimination Schedule is designed to take all your current debt information and project a possible solution for eliminating your debt. The solutions generally show significant savings in interest (interest that does not go to the creditor) by following the schedule instead of merely making the same current payments. How does it work? Each of your debts is given a priority. Each month, your payments are made to each debt. Once one debt is completely paid off, then the payment that was earmarked for the paid off debt is then applied towards the highest priority debt. This then accelerates the payment on the highest priority debt. Loan acceleration (early payoff of a loan) is what produces your interest savings. To sum it up--as debts are paid off, the payments for those debts are applied to the highest priority debts that have not been paid off. Several options are available which can help accelerate and optimize your debt elimination schedule. These include using minimum payments, applying extra payments and selecting a priority method. Loan Consolidation Schedules The Loan Consolidation Schedule is designed to take all your current debt information and combine it into a single new loan. How does it work? The new consolidated loan is presumed to have a lower overall interest rate than the combined existing debts. It is the lower interest rate that makes loan consolidation so appealing--it results in lower overall payments and less interest paid on the loan. Credit cards typically have high interest rates associated with them while Bank or Credit Union loans usually have much lower rates. It is therefore relatively easy to take all your credit cards balances, add them up, get a new loan from a bank, and payoff your credit cards. The bank loan will save you money through interest savings. The Debt Analyzer allows you to create loan consolidation schedules and will determine the amount of money you can save by doing so. Several options are available to tailor the loan consolidation to your specific needs. These options are made available through the loan consolidation method input field. Depending on the method selected, you may have to enter a new monthly payment or the number of months in the new loan. Information about each debt is entered through the Debt Entry Window and includes the name of the debt, minimum payment, current payment, balance, interest rate and a user specified priority. The priority method is only available if the reduction plan is set to the debt elimination schedule. This is the priority in which you want to payoff your debts. You may choose one of 9 predefined priorities or you may enter your own priority by choosing the User Specified option. The predefined methods are as follows: Highest Rate First The debts with the highest interest rates are paid off first. Smallest Debt First The debts with the smallest balance are paid off first. Largest Debt First The debts with the largest balance are paid off first. Smallest Minimum Payment First The debts with the smallest minimum payment are paid off first. Largest Minimum Payment First The debts with the largest minimum payment are paid off first. Smallest Current Payment First The debts with the smallest current payment are paid off first. Largest Current Payment First The debts with the largest current payment are paid off first. Shortest Term Debt First Under the current conditions, the program determines how long it will take to payoff each debt given the payment, balance and interest rate. Those debts which normally take the shortest time to be paid off are given the highest priority to be paid off first. Longest Term Debt First Under the current conditions, the program determines how long it will take to payoff each debt given the payment, balance and interest rate. Those debts which normally take the longest time to be paid off are given the highest priority to be paid off first. Strategies In many cases, the priority payoff option you choose will simply be a matter of preference. However, certain options offer either real or psychological advantages. The Highest Rate First should always yield the best results in terms of the amount of interest saved. Simply put, the debts with higher rates are going to cost you more--so the sooner they are paid off, the better off you will be. Many people advocate that you should pay off the smallest debts first (select Smallest Debt First or Shortest Term Debt First). Your debts will begin to disappear quicker giving you the feeling that you are accomplishing your goal--Getting out of Debt! This satisfaction may be well worth the few extra dollars you may pay in interest by not following the Highest Rate First method. .
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