Friday, February 8, 2008

Hybrid Debt Elimination System

Looking carefully at the last post you will notice that something isn't quite as you'd expect. What are the clues that this isn't actually a Cascading or Snowball debt elimination system? Well for one thing it almost looks like I am not making minimum payments since some of the debt doesn't seem to be shrinking. Of course I am making my minimum payments,always make at least your minimum payments, otherwise you will damage your credit!

What I am actually doing is that periodically, usually once a month, I take the available credit at a lower interest to pay the higher interest debt. I haven't done the math yet to see if this makes a significant difference but I find it intuitive to pay off the higher interest debt with lower interest available credit. Also, I think that over time by doing this Cascading or Snowball debt elimination will actually give the same list order of debts.

You should note however that in my case I have the 5.47% mortgage decreasing while the 6.25% home equity line of credit growing, the reason is that both are actually make up my $187500.00 mortgage. The 5.47% principal from my payments is being added as available credit to my open variable rate home equity line of credit. BTW all of my interest rates are actually 0.5% less except for my fixed and closed 5.47% mortgage.

As always comments are welcomed.

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