Yay for paying off credit cards!!!

[filiadeluna]

Today I was able to get a personal loan from my employee credit union to pay off 5 other small accounts at a much, much lower interest rate! This will cut our monthly payments in HALF :, and we can double up (when able) to get it paid off more quickly. I'm so thrilled! So the credit union is putting my check into my account as we speak, and as soon as it clears I can pay off all those other bills. No more "periodic finance charges" or other random fees. The best part? It’s payroll deducted, so it’s tax free, which also means I’ll have less net income to report on my taxes next year. Mwuhaha.

I finally feel like I see a light at the end of the debt tunnel! Within 3-4 years, we should have ALL of our debts except for my student loan paid off. And once we get that extra tax refund this summer, we can put that toward our one large credit card that has higher interest. : ) You have no idea how relieved I am. I’m so proud of myself for getting this taken care of. Now we will be well on our way to being able to purchase our first house later this year!

[Sarah8Jane]

Luna -
Congratulations on the loan! Make sure you've chopped up those credit cards!

I am confused though. How is your personal loan tax free? Payroll deductions are often post tax. And I think we report (adjusted) gross income for taxes? If you've found a way around the system, I'd love to know about it.

Keep up the hard work!

[filiadeluna]

Originally Posted by Sarah8Jane

Luna -
Congratulations on the loan! Make sure you've chopped up those credit cards!

I am confused though. How is your personal loan tax free? Payroll deductions are often post tax. And I think we report (adjusted) gross income for taxes? If you've found a way around the system, I'd love to know about it.

Keep up the hard work!

Thanks! I am not the one with the credit card problem... it's my DH, and before I pay them off (most of them are in his name alone), I will make him hand me the cards & I will hide them!

As for the tax thing.. I have a savings account with the credit union. What they do is deduct money (the amount of loan repayment) from each paycheck tax-free and put directly into my savings account. Then my loan repayment will be automatically drafted from my savings account once a month.

[weliveintheforest]

how wonderful
would he be willing to cut them up? it might help him :

[filiadeluna]

Originally Posted by weliveintheforest

how wonderful
would he be willing to cut them up? it might help him :

Hehe. Well, 4 out of 5 of those are store accounts anyway, so we will definitely chop those up. The one credit card that can be used anywhere should probably be cut up too since the interest rate is so damned high. However, that would be our only card we'd have for emergencies so I'd rather lock it away (where only I have access) than cut it up. I will make DH ask them for a lower interest rate, though (he can pretend he's going to go with another company once we pay it off - that's how we got the % lowered on the "big" credit card).

As for the other paid-off accounts... you're not supposed to actually close them, right? I mean, doesn't it look bad on your credit score? If that's the case, though, will the companies try to charge us for NOT having a balance? If they do, I will definitely close the accounts b/c that's a rip-off.

[Sarah8Jane]

Originally Posted by filiadeluna

As for the other paid-off accounts... you're not supposed to actually close them, right? I mean, doesn't it look bad on your credit score? If that's the case, though, will the companies try to charge us for NOT having a balance? If they do, I will definitely close the accounts b/c that's a rip-off.

Luna -
Correct don't close the accounts after you've paid them off and cut up the cards. The companies shouldn't charge you for not having a balance (you may want to close accounts with an annual fee though).

Couple reasons to not close them:
1) You and your dh are pretty young (uh, like me) and probably don't have a long credit history. Make sure to keep the oldest credit account open to show a credit history. Don't use it, just keep it open.

2) Closing accounts decreases your available credit and increases the ratio of debt to credit. For example:
You have account #1: 2000 credit limit, 0 balance
account #2: 2000 credit limit, 0 balance
account #3: 6000 credit limit, 2500 balance
So your debt to credit is 2500/10000 or 25%.
If you close accounts #1 and #2 your debt to credit is 2500/6000 or 41.6% which doesn't look particularly great on your credit report.

That's probably more than you needed to know, but there it is.

[Homestylfry]

Originally Posted by filiadeluna

Today I was able to get a personal loan from my employee credit union to pay off 5 other small accounts at a much, much lower interest rate! This will cut our monthly payments in HALF :, and we can double up (when able) to get it paid off more quickly. I'm so thrilled! So the credit union is putting my check into my account as we speak, and as soon as it clears I can pay off all those other bills. No more "periodic finance charges" or other random fees. The best part? It’s payroll deducted, so it’s tax free, which also means I’ll have less net income to report on my taxes next year. Mwuhaha.

I finally feel like I see a light at the end of the debt tunnel! Within 3-4 years, we should have ALL of our debts except for my student loan paid off. And once we get that extra tax refund this summer, we can put that toward our one large credit card that has higher interest. : ) You have no idea how relieved I am. I’m so proud of myself for getting this taken care of. Now we will be well on our way to being able to purchase our first house later this year!

Way to go!! and congrats!!

[Herausgeber]

Originally Posted by filiadeluna

Thanks! I am not the one with the credit card problem... it's my DH, and before I pay them off (most of them are in his name alone), I will make him hand me the cards & I will hide them!

As for the tax thing.. I have a savings account with the credit union. What they do is deduct money (the amount of loan repayment) from each paycheck tax-free and put directly into my savings account. Then my loan repayment will be automatically drafted from my savings account once a month.

This still doesn't make any sense to me. I also have a credit union at work, and they offer a similar arrangement. Such payments come out post-tax, though.

[filiadeluna]

Originally Posted by Herausgeber

This still doesn't make any sense to me. I also have a credit union at work, and they offer a similar arrangement. Such payments come out post-tax, though.

Hmm... okay, well I will double check but I just assumed that because you were putting it into "savings" it could go in tax free? IDK. I am confused. Either way, I'm still saving money on interest.

Homestylfry - thank you!

Originally Posted by Sarah8Jane

Luna -
Correct don't close the accounts after you've paid them off and cut up the cards. The companies shouldn't charge you for not having a balance (you may want to close accounts with an annual fee though).

Couple reasons to not close them:
1) You and your dh are pretty young (uh, like me) and probably don't have a long credit history. Make sure to keep the oldest credit account open to show a credit history. Don't use it, just keep it open.

2) Closing accounts decreases your available credit and increases the ratio of debt to credit. For example:
You have account #1: 2000 credit limit, 0 balance
account #2: 2000 credit limit, 0 balance
account #3: 6000 credit limit, 2500 balance
So your debt to credit is 2500/10000 or 25%.
If you close accounts #1 and #2 your debt to credit is 2500/6000 or 41.6% which doesn't look particularly great on your credit report.

That's probably more than you needed to know, but there it is.

Thank you! I did know about that stuff, but that's the annual fee thing is what I was worried about (just couldn't think of the term for it). I will definitely close accounts if they have annual fees.