Lots of money, but lots of debt

[OC Noob]

So I finished school a couple of years ago and over the last 8 or so years got into a lot of debt. Luckly my job pays well so I can afford to make payments, but want to find ways of paying the debt down faster.

Unsecured Debt:
Student loan $105k--will worry about this last as the interest rate is 6.75% and lower then the unsecured stuff.

Consolidation loan: $46k @ 16% fixed
credit card #1---$5k @ 16% variable
Credit card #2---$7k @ 8% fixed

I was able to pay off about $12k in credit card debt this year and it seams like its going to take forever to dig out of this hole. Does anyone have advise on how to pay these debts down faster? If you can't pay your debt companies will work with you by lowering interest rates and such, but is there anything that can be done when you can and are making your payments?

[maat55]

Asking for lower rates is always useful. Aside from that, it would be helpful to know your current assets, income and expenses.

There are many ways to lower debt, these include selling assets, cutting current expenses and earning more income. Without more specifics, I can't give solid advice.

[disneysteve]

Welcome. If you have reduced your CC debt by 12K so far, that has improved your credit utilization and probably your FICO score as well. That means you may now qualify for better rates than you could a year ago. Call each of the 3 creditors and ask for a lower rate. The worst that can happen is they'll say no.

What is the credit limit on CC#2? Could you move some or all of the balance of CC #1 onto that card? That would drop the rate on that 5K in half.

I would look into refinancing the consolidation loan. Again assuming your FICO is better now, you should be able to knock down that rate which would help you pay it off quicker.

Seeing your income and expenses would help us give more detailed advice, but even without that info, if you paid off 12K the past year, let's assume you can do the same over the next year, meaning the CCs could be totally gone.

[snshijuptr]

I think the variable interest rate or the consolidated loan need to be paid off first as both are the highest rates. If the variable rate is likely to go down, then focus on the consolidated loan. If it is likely to go up then do pay off the variable credit card.

[isralexba]

hi,
as you are talking about large debts you should try to pay them off as fast as you can as your interest rates are very high ... before you notice you will owe much more if you dont manage this.

[cni2010]

Check out the capital one credit card. I received it in the mail the other day and it has no balance transfer fee. So if you can quality for a low rate on the capital one card then you could balance transfer one of your balances to save on the rate for a while.

Also if you have a 401k you could borrow from that to pay off your debt. The downside is that your 401k will not grow, but the plus side is that you can get a low interest rate and you'll be paying your 401k interest ie yourself.

[jpg7n16]

Originally Posted by cni2010

...
Also if you have a 401k you could borrow from that to pay off your debt. The downside is that your 401k will not grow, but the plus side is that you can get a low interest rate and you'll be paying your 401k interest ie yourself.

401k loans must be repaid in 5 years, so you're just moving debt from one place to another and unplugging the 401k. Plus if you lose your job, you will be required to repay the full amount of the loan in a very short time. And since you just lost your job, you won't be able to qualify for a personal loan to repay it - so when you can't pay it, it will be treated as a non-qualified distribution. Taxed at your marginal rate + 10% penalty. Then you have to find a way to pay off the IRS while you don't have a job. bad news for you. (If you can't tell, I really dislike 401k loans)


To the OP: adjust interest rates if you can, but it'll still take a very long time. The only way to make the debt go away fast, is to make really big payments. Nice work on the 12k!!

But even at 12k per year, if you had 0% financing on all of it, it would still take 13.6 years.

It's just gonna take time. Stick with it

[jIM_Ohio]

Originally Posted by jpg7n16

401k loans must be repaid in 5 years, so you're just moving debt from one place to another and unplugging the 401k. Plus if you lose your job, you will be required to repay the full amount of the loan in a very short time. And since you just lost your job, you won't be able to qualify for a personal loan to repay it - so when you can't pay it, it will be treated as a non-qualified distribution. Taxed at your marginal rate + 10% penalty. Then you have to find a way to pay off the IRS while you don't have a job. bad news for you. (If you can't tell, I really dislike 401k loans)


To the OP: adjust interest rates if you can, but it'll still take a very long time. The only way to make the debt go away fast, is to make really big payments. Nice work on the 12k!!

But even at 12k per year, if you had 0% financing on all of it, it would still take 13.6 years.

It's just gonna take time. Stick with it

401k loans vary based on plan rules.

I once had a 401k loan for 7 years.

[jIM_Ohio]

Originally Posted by OC Noob

So I finished school a couple of years ago and over the last 8 or so years got into a lot of debt. Luckly my job pays well so I can afford to make payments, but want to find ways of paying the debt down faster.

Unsecured Debt:
Student loan $105k--will worry about this last as the interest rate is 6.75% and lower then the unsecured stuff.

Consolidation loan: $46k @ 16% fixed
credit card #1---$5k @ 16% variable
Credit card #2---$7k @ 8% fixed

I was able to pay off about $12k in credit card debt this year and it seams like its going to take forever to dig out of this hole. Does anyone have advise on how to pay these debts down faster? If you can't pay your debt companies will work with you by lowering interest rates and such, but is there anything that can be done when you can and are making your payments?

Get as much of the debt on CC#2 as possible

this might mean use half of available payments on cc#2 (6k of the 12k you paid last year) to get balance to 0, then transfer the cc1 balance to cc2, repeat (send 6k to cc2 to pay that off).
then repeat (use a balance transfer check to put 7k of the 46k onto cc2, send 6k there, once paid down, repeat again)

Tell cc2 if they raise your credit limit you will transfer lots of debt to that card.
Once they see this, they will raise the limit anyway.


I would focus on 3 areas

1) spend less than you earn
2) once you take in all the advice from myself and others, create a timeline for when each debt will be paid off and measure yourself against that timeline
3) create a better savings plan going forward

Details:

A person good with money will be able to save 20% of gross pay. If the 12k you paid down in 2009 is NOT 20%, you actually are not doing enough. While 12k is good progress, if you make 120k or 240k per year, its not enough. If you make 60k or less per year, it is really good.

12k is 20% of 60k. If your income is above 60k, you want to put 20% of that income towards the debt.


If you have a 401k, a 401k loan MIGHT help... if you do a 401k loan, it would work best if some or all of the following were true
1) it can pay off ALL the debts in full (401k loans are allowed for 50% of 401k balance... you have 58k of debt, so this is a 401k balance of 116k)
2) you can pay the 401k loan back quickly (2-3 years)
3) the speed you pay back the 401k loan is faster than getting debt free another way (see the timeline I mentioned in item #2 of the "focus on 3 areas" section.
4) If the only way to make 401k loan work (there are minimum payments to consider) is a long loan, you need to think real hard about your employment because once you leave company, loan is due within 30 days I believe (check plan rules).
5) you can maintain 401k contributions to receive any matching contributions from employer.

I would only do 401k loan myself if #1 and #2 were true for sure, and #3 was also true (with some exceptions).

If you own bonds in the 401k, while you have the loan out, I would eliminate all bond positions and focus on equities.

[jpg7n16]

Originally Posted by jIM_Ohio

401k loans vary based on plan rules.

I once had a 401k loan for 7 years.

I don't know why you like arguing against every point I make so much...

but nonetheless... from the IRS website 401(k) Resource Guide - Plan Sponsors - General Distribution Rules (bottom of the page): You can only extend the 5 year limit if used for a home. Which wouldn't apply for debt consolidation, so 5 year max on the 401k loan - to not be taxable.

Loans from 401(k) plans.

Some 401(k) plans permit participants to borrow from the plan. The plan document must specify if loans are permitted. A loan from the 401(k) plan is not taxable if it meets the criteria below.

Generally, if permitted by the plan, a participant may borrow up to 50% of his or her vested account balance up to a maximum of $50,000. The loan must be repaid within 5 years, unless the loan is used to buy the participant’s main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan.

The participant must reduce the $50,000 amount, above, if he or she already had an outstanding loan from the plan (or any other plan of the employer or related employer) during the 1-year period ending the day before the loan. The amount of the reduction is the participant’s highest outstanding loan balance during that period minus the outstanding balance on the date of the new loan.

Certain participant loans may be treated as taxable distributions. For more information, refer to the section, “Loans Treated as Distributions,” in Publication 575.

[cyclone1]

Focus and work hard at it, I know you can pay off your debt! =)

[heidrek]

paying doen your debt is a bit like keeping on top of your gardening on a big home. the garden keeps growing, and at first the effort it takes to keep it under control seem overwhelming, but once you get into a routine and keep it maintained it gets easier.

don't forget though that if you get complacent you'll find it grows again at a frightening pace - consistency is key!

[FHA Loan]

Originally Posted by OC Noob

So I finished school a couple of years ago and over the last 8 or so years got into a lot of debt. Luckly my job pays well so I can afford to make payments, but want to find ways of paying the debt down faster.

Unsecured Debt:
Student loan $105k--will worry about this last as the interest rate is 6.75% and lower then the unsecured stuff.

Consolidation loan: $46k @ 16% fixed
credit card #1---$5k @ 16% variable
Credit card #2---$7k @ 8% fixed

I was able to pay off about $12k in credit card debt this year and it seams like its going to take forever to dig out of this hole. Does anyone have advise on how to pay these debts down faster? If you can't pay your debt companies will work with you by lowering interest rates and such, but is there anything that can be done when you can and are making your payments?

My advice to you is make minimum payments on all loans except the credit card #1 which has the smallest balance AND highest interest rate. I would focus all excess cash towards paying down the #1 credit card until it is gone. This will alleviate 1 debt very quickly and you will see progress.

Although it has a much lower rate, I would still focus all excess cash towards Credit card #2 once #1 has been paid off. That is only $7K which should be quickly paid down and another debt eliminated. Seeing progress as each loan is eliminated is key as it makes you want pay things off even faster.

Once both credit cards have been paid off then move on to the consolidation loan. All excess cash should be focused on it. If possible, look for options to reduce the rate. If you own a home and have equity built up then consider refinancing with a cash-out refinance and paying off the $46K with the cash you receive from the equity in your home.

And you are correct... I would save the studen loans for last.