Another one bites the dust…!

Today is a good day,  Today I write to you about the latest credit card we paid off!  Our USAA $6,000 limit (USAA 6K) MasterCard finally bit the dust.  Now the method I used may be somewhat controversial to most of you and it wasn’t an easy decision to make.  However, I knew my decision has to be based upon facts and mathematics and not emotions.  We used my daughter, Natalie’s 529 College Savings Fund to do it.  What?!!!!  I know most of you must think I have lost my mind.  Let me explain.

The Math

Last week or so, I was looking over our debt and budget.  I then decided to look at the small amount of investments that we have.  Looking at Natalie’s 529 college savings fund I noticed that of the $5568.86 balance, I had contributed $4750.00 of after tax money.  So it had only made $818.86 over 9 years.  This equates to approximately $91.00 a year or $7.58 a month.  That is roughly 1.6% interest a year.  I consider that a horrible investment.  Now lets take a look at our USAA $6K MasterCard.

Our MasterCard had a balance of $5233.84 at 11.9% interest.  Our minimum payment was $105.00 a month and we were being charge almost $60.00 a month in interest.  Now my thought process at that time was to use the money in the 529 fund so we could pay off the balance and save almost $60.00 a month in interest and have $105.00 a month that we could use to pay on another debt.  Mathematically speaking, this was very good financial decision.

The Emotions

Looking at this emotionally, was I robbing my daughter of her future education?  Was I stealing from her?  At first, my wife, Ruby, did not like my proposal.  After we sat down and talk about it as a team we realized that the math did not lie and it was indeed a smart financial decision.  We figure that since by being in the debt that we are, it was not smart to make any contributions to her college fund.  Besides, the money invested would not be doing her any good right now anyway and it would really help us out.  This is the plan we came up with and executed.

The Decision

  • Withdraw only the principal money from Natalie’s 529 account ($4750) and leave the remaining interest ($818.86) in the account to grow future interest, no matter how little it will make.  By withdrawing only the after tax principal, we should be able to avoid paying any penalties.  (Please check with your tax professional before making and financial transaction as we have)
  • Take $483.84 from our monthly debt snowball and the principle from the 529 account ($4750) and pay off the USAA 6K credit card.
  • Use the $105.00 a month saved from not having to make the payment on the credit card and apply to our debt snowball.
  • Benefit from not being charged almost $60.00 a month in interest.
  • Make future plans to make large contributions Natalie’s 529 account one we are debt free.

Progress Report

As of April 2012, we have paid off 34.12% of our total overall debt.  We currently owe $47,170.22 in credit card debt.  $29,263.96 of that debt is currently at 0% interest.  We are trying to pay off as much as we can before the interest starts charging again.  We currently have a total of $80,739.01 to pay before we are officially debt free.  Seems like a lot until you see that we owed $122,554 back in August of 2011 when we started this journey.  

How have you been doing on your debt free journey?  What were your hits and misses?  Any really good news to celebrate about?  Let me know!  I am interested… :-)

To your financial health – Martilyo!


photo credit: Betts/Bloomberg

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17 Responses to Another one bites the dust…!

  1. Pingback: Struggling to Pay Credit Card Debt « Christian Debt Settlement

  2. Myrtle says:

    I think I would never get a credit card because it will just be a problem for me.. I hope this can be a lesson to every person..
    Myrtle recently posted..Sharepoint Hosting

    • Martilyo says:

      They are either a blessing or a curse. Unfortunately, they seem to be a curse to most people. Very few people that I have come into contact with, use credit cards as they are intended to be use. Thanks for commenting!

  3. andrea says:

    I think you made the right decision, congrats on paying off another chunk! (and I hope you shredded the sucker after you paid it off!)

    • Martilyo says:

      Thanks! The card is actually put away in a credit card case with all of the other credit cards. I will close the accounts and cut them all up when they are all paid. Like a debt free ceremony. I know I am responsible enough now not to use them. I track my total debt monthly and the balances keep dropping. I know I am doing something right! Thanks for stopping by again!

  4. Pingback: Link-Love #19 | Nickel by Nickel

  5. Sheila says:

    I think you made the right decision, when the times comes for your daughter to go to college, she will find a way!! Getting out of debt and staying that way takes discipline.
    Sheila recently posted..Tips for Alzheimer’s Care

  6. Jerrah says:

    Well for me, credit card is a curse because it has tempted me a lot to shop more and now I can’t pay them all.. I just hope it is a lesson to all of us..
    Jerrah recently posted..Travel Tomato

  7. Big congrats on paying off that card Martilyo! Keep up the great work and stay focused!
    Zero Passive Income recently posted..How to Create a Side Business

  8. Angelina says:

    If I was your daughter, I would see the wisdom in this and respect how hard my parents are working to ensure I grow up in a financially-independent family.

    Just found this blog. Lurking shall commence! :)

  9. Don says:

    I had about $100,000 in credit card debt and had a $350,000 mortgage to pay at about $2,300 per month for the next 27 years when I would be age 104 years old!
    So, sadly I sold my home of 27 years and moved to aless expensive city where I rent a small house for $1300 a year plus utilities. I paid off my credit card debts with the sale of the house.
    I have no savings and needed to use credit cards again to pay medical expenses and give money to an adult child. I know the latter giving must stop, by the way.
    Fortunately, my pension and otherwise refused spending are rapidly paying off my new debts. I could not see how to avoid those new debts.
    I hope that in another year I might buy a new home, with a VA loan, that will have a lower or not much higher cost than my current lease.

    Admittedly, I often feel like a failure or fool after having worked for 67 years. No home, no wife and no friends. That’s my worst case feeling, however. Usually, I just keep on trucking.

    • Martilyo says:

      Never feel like a failure or fool Don, we are all human and subject to errrrr… At least you are back on track now and I am sure you going to live your life the best way you know how. Be happy that you are not financially “lost” like you once were. I was there with you. Being financially lost is devastating once you become aware of your financial situation… can be a very REAL and SCARY experience! Thanks for posting and sorry for the delayed response.
      Martilyo recently posted..Hello from the Mediterranean!

  10. Hi Martilyo, what a great story here. Although the cost of loans is often thought of, the opportunity cost of loans is not so much. It looks like you broke down the opportunity cost and made a great decision! Thanks for the great read!
    Joshua Rodriguez recently posted..How To Improve Your Credit Score

    • Martilyo says:

      Thanks for the response Joshua. When dealing with your personal finances, we get stuck trying to figure out what is the best place to put our money or what debt to pay next. It can give you a headache for sure. I do know one thing that never gave me a headache and that was paying off a debt. What a stress relief! The day will come that I am debt free. It will be one of the best days of my life that I do not have to worry about the risk of debt. Thanks for stopping by…

      Martilyo recently posted..Hello from the Mediterranean!

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