Friday, July 9, 2010

Paying Off Some Bills...

So I have two department store credit cards, Meijer and Walmart, that I've had for the last several years and I simply can't seem to get them paid off. They are both relatively low balance cards, and that's probably why. I always seem to convince myself that making the minimum payment on them is good enough because they are such low balances that even the $14 minimum payments would work to lower the balance.

Of course everyone, myself included, knows this isn't really the case. They are low balance, but have high interest my $14 minimum payments are really only ending up putting like $4 or so to the principal every month.

So I decided to do something about it.

One of the nice things about the Thrift Savings Plan that we have at work is that you can take a loan out of your savings and not end up having to pay any taxes on it. You can do this because you "pay" yourself back by having a few extra bucks every paycheck put into your TSP account.

Of course, this can cause you to lose out on a bit of interest...but I did the math and figured that I would probably be better off taking out some of the money and getting rid of these cards. The interest rate on the TSP Loan is 2%. The interest rate on the credit cards are both about 30%.

So, in one year those "low" balances that total right around $800 would require me to pay about $240 in interest. That's just the real simple version, not taking into account that the principal would go down a few bucks every month. Compare that to right around $20 interest for the year on the TSP Loan, and that's a savings of $220 in just the first year. That $220 savings is a bit more than the interest that the TSP would make for me based on how I have it invested, so to me the answer was simple. Take the TSP loan, take the hit on the earned interest to save on paying interest, and get those two cards taken care of and out of the way.

I got the money put into my checking account today, so I'll be sending out the last two payments to those two cards within a couple of days!!!

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