Why reducing my debt is so important.

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That's a pretty damned obvious question, isn't it? But on the heels of having paid off two of my credit cards in the past several months, it's one that I'm getting jazzed about. I've got one card to go, and I plan to handle that with my tax return. The card is only $600, but it's got an APR of 28.99%. The minimum monthly payment on this card is $25, and if that's all I ever pay, it'll take me till March 2015 to pay it off. I'll have paid Citi an extra $327.38 in interest as well. That's what Citi wants, and that's what a lot of people do, which is why they are perpetually poor. So it's obvious that I need to snowball all my resources into this card a.s.a.p. so that it's no longer costing me an extra $14.82 each month. Each month, if I pay only the minimum, I'll be paying 60% of the money toward interest, and only 40% toward the actual balance! That's ridiculous.

I'm planning on holding on to my tax return for a trip to Colorado in June, but that trip is 17 weeks away. Meanwhile, getting paid around $440-week, I can save myself a lot of money in the long run if I just go ahead and use the return to pay off my Citi card's $600 balance, park the rest in savings, and set back 10$% of my pay each week till I've recovered the balance. Over 17 weeks, 10% of my pay would be $748!

Part of me is nervous about this. Part of me wants me to hold on to the tax return the whole time so I can have an emergency bundle in case I get laid off. But the other part of me remembers how ruthless the bill collection calls were last time I was laid off. I had 3 open credit cards then, and the calls wouldn't stop. So this would reduce the bills due if my job were lost again, which would reduce my cost of living, and make another job loss easier to bare.

The other part that worried me initially about the idea was the fact that I really want this tax return to pay for the Colorado trip. I was worried initially that if I lost my job, I wouldn't be able to repay the money to the trip fund, and then I wouldn't be able to go. But then I snapped into reality and realized that if I do lose my job, I'll need that tax return to live off of. There wouldn't be a Colorado trip. I may as well use it to pay down my debts now while I do have a steady income.

I could just park the money in my savings from my tax return, then snowball 10% of every paycheck into the credit card over the next few months. That would mean I'd have it paid off before my trip in June, but only by a month. And then I'd be paying an extra $35.52 in interest that I wouldn't have to pay. So I'd actually be paying $635.52 over 4 months. It makes more sense to me to instead just pay it off now, and stop the flow of more interest charges from Citi, then repay myself by putting the 10% in my savings each week. That savings would actually be earning ME interest, as opposed to costing me interest. In other words, it would save me more money for my Colorado trip, and for overall living, if I just pay it down in one payment with my tax return.

Sure, this wouldn't be the end of my debts. I have other interest bearing debts (things like student loans…..). But the interest rates of these 3 credit cards has been costing me so much more of my hard earned money than was justified by the original purchases that these had to be paid off a.s.a.p.

I just dumped the figures from my 3 credit cards into my Debtinator software, and if I had just started paying off these 3 cards at maxed out balances, only making the minimums, I'd have paid $752.71 in interest alone on a $600 credit limit with Citi (at 28.99%), $735.05 in interest on a $500 credit limit with HSBC (at 26.99%), and $730.39 in interest on a $500 credit limit with Chase (at 29.99%). To top it off, it would've taken me 3 years to have paid off these cards. So out of a total credit limit of $1600, I would've paid off the $1600 principal and paid $2218.15 in interest. That's a total of $3818.15 on $1600 worth of credit!

Yeah, and now I'm really pissed at myself for having perpetually maxed out credit cards over the last 6 years. This is sickening. At least now, I've paid off my HSBC and Chase cards, and it's only been a few months. But this ends now. Period.

2011 was a wake up call. 2012 is the year I turn it all around. I'm done being a slave.