A lil idea I am working with....

[sofocused978]

Alright so I am getting real into this becoming debt free thing and wrote down a lil plan today but I am unsure of how it sounds and would like some advice. I will start with the money I have and the debts.

High Yield MMA @ 4.76 for the next 2 months(3.65% afterwards) = $7890

Debts

Credit Card 1- $19460 @5.9%/ $300/month
Credit Card 2- $440@ 9.9% = no finance charge yet plan to pay off once bill arrives
Car Loan- $4695 @8.5%/ $290/month
Bike Loan- $4360@8.9%/ $157/month

on top of that I have rent and insurance which equals $470

Total bills=$1216
Net Monthly income=$1815 after 15% 401k investment.

I am trying to find the best route to get these debts paid off. My idea is to pay off my car loan from the MMA aswell as CC#2. That would leave me with $2785 or something. My monthly bills would decrease to $970 leaving me with almost 3 months emergency money.

The next idea would be to put the bike loan on a balance transfer check with Discover @0% for 12months costing bout $150 to transfer the loan but saving me about $30 in interest every month. Making the balance $4510. From here I would take the car payment money and add on to the bike payment paying $500/month that would be paid off in 9 months. Now leaving me with $769 in monthly bills. Bout $1046 leftover.

From there the plan is to put an extra $500 month towards the credit card and get it paid off in about 24 months. Leaving me with $600 for food and other expenses or to put back into savings. Leaving me debt free by the time I turn 31 bearing no crazy stuff happens.

How does this sound?. Should I feel safe with only have a 3 month emergency fund for a while? This idea basically shows me making the same pay for the next 3 years continuing putting 15% into a 401k. I was also thinking of dropping that to 10% to put a lil extra cash into my monthly net. Thoughts would be great. Also I plan to get on a strict budget and stop eating out all the time. TIA

[JeanneElle]

That sounds really well thought out - it sounds like it could work. There's no perfect solution and crazy stuff can come out of nowhere, but if you have a decent plan and the numbers work out, at least you're doing something constructive.

Isn't it a tough choice between savings and paying down debt? lol. I tend to look at interest rates... for instance, if your debt is at a higher interest rate than your savings, you want to reduce the debt, but then again, you need some emergency savings.

Good luck :-)

[KGeary]

Originally Posted by sofocused978

Alright so I am getting real into this becoming debt free thing and wrote down a lil plan today but I am unsure of how it sounds and would like some advice. I will start with the money I have and the debts.

High Yield MMA @ 4.76 for the next 2 months(3.65% afterwards) = $7890

Debts

Credit Card 1- $19460 @5.9%/ $300/month
Credit Card 2- $440@ 9.9% = no finance charge yet plan to pay off once bill arrives
Car Loan- $4695 @8.5%/ $290/month
Bike Loan- $4360@8.9%/ $157/month

on top of that I have rent and insurance which equals $470

Total bills=$1216
Net Monthly income=$1815 after 15% 401k investment.

I am trying to find the best route to get these debts paid off. My idea is to pay off my car loan from the MMA aswell as CC#2. That would leave me with $2785 or something. My monthly bills would decrease to $970 leaving me with almost 3 months emergency money.

The next idea would be to put the bike loan on a balance transfer check with Discover @0% for 12months costing bout $150 to transfer the loan but saving me about $30 in interest every month. Making the balance $4510. From here I would take the car payment money and add on to the bike payment paying $500/month that would be paid off in 9 months. Now leaving me with $769 in monthly bills. Bout $1046 leftover.

From there the plan is to put an extra $500 month towards the credit card and get it paid off in about 24 months. Leaving me with $600 for food and other expenses or to put back into savings. Leaving me debt free by the time I turn 31 bearing no crazy stuff happens.

How does this sound?. Should I feel safe with only have a 3 month emergency fund for a while? This idea basically shows me making the same pay for the next 3 years continuing putting 15% into a 401k. I was also thinking of dropping that to 10% to put a lil extra cash into my monthly net. Thoughts would be great. Also I plan to get on a strict budget and stop eating out all the time. TIA

It's easiest and usually fastest to go from smallest to largest. It's also better in terms of emotional support because you see more progress faster.

I would stop the 401k contributions temporarily and put all of that money toward the debt. Then, as you pay off from smallest to largest, put the money that's free'd up from those minimums toward the next debt.

[kork13]

Originally Posted by KGeary

I would stop the 401k contributions temporarily and put all of that money toward the debt.

I disagree here somewhat. You're probably getting a match from your employer? That immediately gives you a 50% (or whatever their match is)return on investment. Plus, given the deflated state of markets at the moment, keeping a fair sum of money moving into your 401k will reap further benefits over the long haul.

However, while I think 15% is great, you could probably drop it down at least to the 10% you mentioned to give yourself a bit more on your monthly income, or maybe even down to the max your employer will match to (4-6%, on average). It's up to you, and you want to look at how significantly that will have impact by doing it one way or another.

As for drawing down your MMA, I think keeping only 3 months' worth is fine. Heck, alot of people struggle just getting to that point. It's a balance between maintaining savings balance and debt balance (no pun intended), and I think drawing savings down somewhat to eliminate debt as you laid out is a good choice in your situation.

[maat55]

I would cut back your 401k to the match. Tighten your budget. Pay your minimums and apply all extra money towards the smallest debt to the largest.

When your MMF comes due, I would use all but 1k towards the debts, provided that you feel safe in your job.

[sofocused978]

Thanks for your thoughts so far. First of all I would go from smallest to largest debt but due to the car freeing up more than the bike thats my reason for paying that debt first. Secondly, not investing into my 401k is not an option. My company matches .25/dollar up to the first 4 percent. I recently started putting money in last November and would like to continue since I withdrew the others I had when I was younger and need to catch up.

After a lil more math if I get on a strict budget of spending $400/month on food/gas/etc I will have about $5k in the emergency fund by this time next year and about double that once CC #1 is paid off. I am starting to talk myself into this. More thoughts please.

[maat55]

There are good plans and great plans, but any focused plan will get the job done. Good luck.

[kork13]

What more convincing do you need? Getting out of debt is always a great idea! Seriously, you've got a good, well thought out, sustainable plan. Go for it!

[maat55]

For the record, the flaw in your plan is that choosing to pay one note before another has no advantage other than emotionally. The fact is, you have a certain amount of money paying a certain amount of debt.

Typically, paying the highest to lowest interest will pay the debt faster. In your case, the smallest to largest is doing both.

Next, having money sitting in a savings account earning 4% while paying 8 and 9% on debt is unwise. And I would still pay down debt before investing over the match.

[anonymous_saver]

First off, good job on trying to get a handle on this debt! Keep positive about it, be proud of small sucesses!

Can you explain why you have a bike and a car loan? Do you need the bike or the car for work? Is the bike a luxery? Honestly, I think this is a huge part of "holding you down". Could you get rid of the bike (even if you would be upside down), and buy one when you have a better financial situation. Idealy, I would also sell the car, and take public transportation for awhile. This would save you a TON of money. If you don't live near public transportation, I would probably still sell the car and buy a cheap used car for the time being.

Is there a way you could earn some overtime money, or a side job? Anything could help, even $50 more a week could help pay off this debt faster.

I understand that you don't want to lower your 401(k) contributions, but I would HIGHLY try to reconsider this if I were you. This amount of money could help you pay this debt off faster (expecially the almost $20k of CC debt). Once you pay off your debts (and don't obtain additional ones!), then jump up your 401(k) contributions.

I would also definitely stop putting money towards your emergency fund. In fact, I would personally cut it down to 1-months worth and pay down this debt fast. It makes no sense to make around 4% interest, when you are paying 6-9% on your debts. Try to work on doing the financially better thing for yourself, rather than the psychologically best thing.

I'll look forward to hearing what your plan will be. Good luck!

[disneysteve]

Originally Posted by anonymous_saver

Can you explain why you have a bike and a car loan?

My question exactly. One of those must be a luxury purchase (I'm guessing the bike).

Also, even though the car loan has a lower rate, keep in mind that it is a fixed rate. The credit card rate could rise sharply at any time for any reason. Next month, it could jump from 5.9% to 15.9% or more. I agree with paying the highest rate debt first, but just be careful with that credit card because it could turn around and bite you.

[sofocused978]

The bike is a luxury as one would assume. I thought about selling it but will not be. I do have a company vehicle but cannot drive it to run errands or anything else after work so thats the only reason I still have a personal vehicle. Only thing holding me back on pulling from my savings right now is work. We have been getting really slow and like today for example I am home at noon time. That's a story for another day.

Edit: Also I spoke to the woman in my HR dept about lowering my contributions to my 401k. It can only be done once a year which seems weird cuz every other account I have had I could change my contributions over the phone. Not this one. So should I drop down to 5% or 10%? I will need to do this by Friday. And I am not too worried bout the interest rate changing on my CC. I am locked in @ 5.9 till its paid off. If they were to change it for some reason I could move to another card with a 0% in the mean time.

[Tree0164]

Originally Posted by sofocused978

The bike is a luxury as one would assume. I thought about selling it but will not be. I do have a company vehicle but cannot drive it to run errands or anything else after work so thats the only reason I still have a personal vehicle. Only thing holding me back on pulling from my savings right now is work. We have been getting really slow and like today for example I am home at noon time. That's a story for another day.

Don't you have a personal car as well. The bike is a luxury-you can buy one in cash after you got your debts paid off.

[disneysteve]

Originally Posted by sofocused978

The bike is a luxury as one would assume. I thought about selling it but will not be. I do have a company vehicle but cannot drive it to run errands or anything else after work so thats the only reason I still have a personal vehicle.

So you have a company car, a personal car (with a loan) and a motorcycle (with a loan). Am I the only one who sees a problem with this? You don't need 3 vehicles.

[freesamples]

Caliculations are very fine. But it sounds a bit difficult in practical conditions. For next three months surviving without having emergency fund necessitate to recaliculate inflow of funds or clearning debts.

[sofocused978]

Well good thing I didn't jump right into this. I lost my job this morning and don't feel so worried knowing I have a few months in the bank. I need to file a claim with unemployment and my next action will be based off what happens with that.

[sofocused978]

Well let me tell you I am somewhat happy I didn't go thru with this earlier. First of all it has been a month now and I have yet to see a check from unemployment. I spoke with them last week and the company I was working for is disputing the claim. I crashed my motorcycle last week while trying to bring it over my brothers house to store for the winter and put on craigslist. Lets just say I should have never increased my ins deductible to $1000. Then I just got a letter from citibank saying they are increasing my apr to a min of 14.9% from 5.9% and I have never missed a payment or been late. I am SCREWED.

[disneysteve]

Originally Posted by sofocused978

I just got a letter from citibank saying they are increasing my apr to a min of 14.9% from 5.9% and I have never missed a payment or been late.

Exactly what I warned of above. Credit card companies can change the terms at any time for any reason (or for no reason at all). Hopefully, you can transfer the remaining balance to a 0% or low-interest card soon.