Am I on the right track?

**DanielB** · 02-11-2011, 12:15 PM

As an add-on, I briefly had a second job, in addition to my full-time job and full-time graduate school, but it just didn't work out because of my time constraints. I am afraid that taking on a second job just isn't an option in my present situation, at least not until I graduate in Spring 2012.

**greenskeeper** · 02-11-2011, 12:24 PM

can you transfer the balance from the higher rate card to the lower one?

**DanielB** · 02-11-2011, 12:33 PM

Thank you for taking a look at my post.

Unfortunately, no. The limit on the low-interest card is only $1k. Just realized I did forget I have another credit card with a $750.00 limit and $0.00 balance - they keep sending me 0% for one year balance transfer and check offers, with a 3% transaction fee. Would it be wise to take $700 from the 0% card and use it to payoff a portion of the large credit card balance? (This would cost $21.) My gut says no, but I'd be interested in hearing thoughts.

**jpg7n16** · 02-11-2011, 12:40 PM

Originally posted by DanielB View Post

- What should I do about the car (if anything)?

Nothing. You're about $6k upside down and with the current debt you already have, I doubt you'd be able to sell the car and finance the $6k difference. If the amount were closer to what you owe, I would think that selling the car and buying a $5k car would help. Not solve all your problems, but help.

- What should I do about my situation overall?

1) Change your mindset about debt.

I'm not sure if you still think that way, but what you have debt-wise is the result of a 'if I can afford the payment, I can afford to buy it' mentality.

2) Create a budget that accounts for each and every dollar each month. $38k isn't a fortune, but it is good enough to make some progress on paying off this debt

3) Stop trying to invest your money. Yes it's wise to invest in general, but only once you're in a position to invest. It's not wise when you have all this high interest rate debt out there. Stop the sharebuilder brokerage, stop the sharebuilder Roth, stop pretty much all investing (unless you get a company match at work - then take the match; no more, no less)

4) You don't need a $1k EF and a $500 cushion. You'll have to use credit line as part of emergency planning.

5) Talk to the HR peeps at work and get rid of your tax refund. All that a refund means you've paid more in taxes than you should have all year long. A $1600 refund means you should have been getting $133.33/month more in your paychecks.

- Are my plans for my "windfall" appropriate, or is there a better use for those funds?

No, I don't like your plan for your windfall. As sad as it is, 7% is your lowest interest rate debt! You could get more than 3x the bang for your buck by paying down the 22% (unreal) CC.

I'd put it all towards that 22% card. It'd be available in case of emergency and would save the most interest in the meantime.

Then you've got to do something about this debt!

Your interest alone is costing you $6,578.88/year! That's eating up 17% of your income. Income that could have gone to retirement savings, or a vacation, or just to your bank account.

I hope this begins the process of changing how you think about debt.

**jpg7n16** · 02-11-2011, 12:47 PM

Originally posted by DanielB View Post

Thank you for taking a look at my post.

Unfortunately, no. The limit on the low-interest card is only $1k. Just realized I did forget I have another credit card with a $750.00 limit and $0.00 balance - they keep sending me 0% for one year balance transfer and check offers, with a 3% transaction fee. Would it be wise to take $700 from the 0% card and use it to payoff a portion of the large credit card balance? (This would cost $21.) My gut says no, but I'd be interested in hearing thoughts.

Your 22% card is charging you $12.83/month in interest.

So unless you are able to pay it off in the next 2 months, yes it would be worth it to transfer the debt to 0% for a year by paying $21

**disneysteve** · 02-11-2011, 01:41 PM

Originally posted by DanielB View Post

A friend of mine who was truly in bad shape last year was in desperate need of help, both financial and in other areas. I finally stepped in when no one else would. She is back on her feet now.

And what are her plans to repay you for the help you provided? If you lent her money, which I'm guessing you did, does she have any intention of repaying it?

I agree that you should focus on the 22% debt first. Also, if your credit score is in the low 700s, why is your rate 22%? I would call and request a better rate.

I agree that you don't need a $1,500 EF right now. $1,000 is good enough to start.

You didn't list all of your assets. You have cable so that implies you have a TV. Sell it on craigslist. You have an iPad. Sell it on craigslist (unless that's your only computer). What else do you have that could be sold?

If you cancel cable ($58), Netflix ($11), iPad internet ($25) and ditch the website ($40), that frees up $134 per month that you can use to attack debt.

I'd suggest you start looking for the place you will move to in May when your current lease expires. You currently spend 32% of income for rent and that will rise to 35% in May. You need to knock that down. Either that or take in a roommate to share costs.

You've got a huge mess on your hands and you're going to need to make some major sacrifices if you want to get it cleaned up. And you definitely need to reconsider the 2nd job. More income, even just a few hundred dollars per month, would have a huge impact on your situation.

**DanielB** · 02-11-2011, 04:58 PM

Originally posted by jpg7n16 View Post

Nothing. You're about $6k upside down and with the current debt you already have, I doubt you'd be able to sell the car and finance the $6k difference. If the amount were closer to what you owe, I would think that selling the car and buying a $5k car would help. Not solve all your problems, but help.

1) Change your mindset about debt.

I'm not sure if you still think that way, but what you have debt-wise is the result of a 'if I can afford the payment, I can afford to buy it' mentality.

You are right on this point. I have started to change my way of thinking, but it's not yet where it needs to be.

2) Create a budget that accounts for each and every dollar each month. $38k isn't a fortune, but it is good enough to make some progress on paying off this debt

How should I handle flexible expenses (like electricity or groceries) that will vary from month to month? Should I allow for the maximum possible, or take an average of the last 12 months?

3) Stop trying to invest your money. Yes it's wise to invest in general, but only once you're in a position to invest. It's not wise when you have all this high interest rate debt out there. Stop the sharebuilder brokerage, stop the sharebuilder Roth, stop pretty much all investing (unless you get a company match at work - then take the match; no more, no less)

4) You don't need a $1k EF and a $500 cushion. You'll have to use credit line as part of emergency planning.

5) Talk to the HR peeps at work and get rid of your tax refund. All that a refund means you've paid more in taxes than you should have all year long. A $1600 refund means you should have been getting $133.33/month more in your paychecks.

This is a different track than I was thinking down, and I am so glad you have offered up this advice. It does make sense on all counts.

No, I don't like your plan for your windfall. As sad as it is, 7% is your lowest interest rate debt! You could get more than 3x the bang for your buck by paying down the 22% (unreal) CC.

I'd put it all towards that 22% card. It'd be available in case of emergency and would save the most interest in the meantime.

That makes a lot of sense. I will definitely do that. I can knock $2,600 right off the top, maybe more as I'm selling a couple of other things (like an aquarium and stand I'm not using).

Then you've got to do something about this debt!

Your interest alone is costing you $6,578.88/year! That's eating up 17% of your income. Income that could have gone to retirement savings, or a vacation, or just to your bank account.

I hope this begins the process of changing how you think about debt.

17% of my income! Yikes! Put that way, I need to get on the ball!

Thank you so much for taking a look at my situation. I really appreciate your help and advice.

**DanielB** · 02-11-2011, 05:00 PM

Originally posted by jpg7n16 View Post

Your 22% card is charging you $12.83/month in interest.

So unless you are able to pay it off in the next 2 months, yes it would be worth it to transfer the debt to 0% for a year by paying $21

That makes sense. I'll be doing this on Monday and have already written the check! This $700 combined with the $2,600 cash will knock the biggest credit card's balance down to just about $200.00!

Once I pay that $200.00 off (I am confident I can scrape together the $$$ to do that within a month), I should start on the $969.99 credit card balance, right?

**DanielB** · 02-11-2011, 05:11 PM

Originally posted by disneysteve View Post

And what are her plans to repay you for the help you provided? If you lent her money, which I'm guessing you did, does she have any intention of repaying it?

Here's the part that's going to make me sound stupid: it was all a gift, and I even told her this up-front. Part of the funds were used to help her purchase basic necessities for living, and a little bit was given as cash. I sent the rest as an anonymous donation. I made it clear that all of it (at least, what she knew I gave) was a gift and didn't have to be repaid unless she absolutely wanted to. Whether she will or won't, I don't know and I'm not counting on it either way.

Wasn't the smartest thing for me to do when I am still not doing financially well, I know, but I didn't have a heart to sit this one out. (To be clear, this situation was complex and wasn't due to her irresponsibility. I don't want to get into details on any of the cases, but I've had other friends who got into big financial trouble and could have used help, but whom I did not help because their problems were of their own making. This friend's situation was very tragic and very different from my other friends'. She didn't ask me for help at all - I volunteered it.)

I agree that you should focus on the 22% debt first. Also, if your credit score is in the low 700s, why is your rate 22%? I would call and request a better rate.

I am pretty sure now that I can pay this whole balance off within a month. This is based on $2,600 in cash that I know is coming in, plus $700 from the 0%-for-one-year offer, plus $200 I am pretty sure I can scrounge up.

I agree that you don't need a $1,500 EF right now. $1,000 is good enough to start.

Are you also recommending that I payoff the 22% card first, or are you saying I should make the efund a bigger priority?

You didn't list all of your assets. You have cable so that implies you have a TV. Sell it on craigslist. You have an iPad. Sell it on craigslist (unless that's your only computer). What else do you have that could be sold?

This is true. The iPad is definitely valuable and could fetch $500-$600 based on actual selling prices I'm seeing...I have been using it for school, but I have an old laptop that might suffice - I'll have to check and see. The TV is probably worthless due to its age and features (or lack thereof). But an extra $500 from selling the iPad would eliminate over half of the 7% CC debt! I like that idea.

If you cancel cable ($58), Netflix ($11), iPad internet ($25) and ditch the website ($40), that frees up $134 per month that you can use to attack debt.

Interesting thought....I could do all of this by Monday and instantly have $134 in extra monthly cashflow from this + the $133.33 extra from minimizing tax withholding in my paycheck. A total extra income of $267 would be very significant in my case, I assume?

I'd suggest you start looking for the place you will move to in May when your current lease expires. You currently spend 32% of income for rent and that will rise to 35% in May. You need to knock that down. Either that or take in a roommate to share costs.

I did look at a new place last week. I could probably rent a unit there for about $690-700/month, so I would save about $50 there (this cost doesn't include the water/sewer that my current rent does).

You've got a huge mess on your hands and you're going to need to make some major sacrifices if you want to get it cleaned up. And you definitely need to reconsider the 2nd job. More income, even just a few hundred dollars per month, would have a huge impact on your situation.

I do have quite a mess. Thank you so much for taking a look and taking the time to give advice for my situation! Can I ask you this: do you think if I buckle down and get serious that I can meet my goal of being 100% debt-free by July 2017?

**DanielB** · 02-11-2011, 05:13 PM

New Order of Priority

1. Payoff major CC debt on 22% card
2. Payoff CC debt on 7% card
3. Payoff CC debt on 0% card
4. Payoff auto loan
5. Payoff private loan
6. Payoff private student loan
7. Payoff federal student loan

Does this order make the most sense for my situation? (Note: I would be snowballing payments as I finish each debt off.)

**disneysteve** · 02-11-2011, 07:55 PM

Originally posted by DanielB View Post

New Order of Priority

1. Payoff major CC debt on 22% card
2. Payoff CC debt on 7% card
3. Payoff CC debt on 0% card
4. Payoff auto loan
5. Payoff private loan
6. Payoff private student loan
7. Payoff federal student loan

The Personal Loan should be before the car loan due to the much higher interest rate of 16% vs. 8%. Otherwise, I think that sounds good. Can you do it by 2017? Absolutely. I think you can do it way before that if you really tighten your belt and stay focused.

**jpg7n16** · 02-11-2011, 08:20 PM

If I got to set up your payoff method it would go like so...

High Interest

Credit Card 2 (22% interest, $5,500 limit) - $3,490.66 minus 700 = 2,790.66
Personal loan (16.x% interest, ~55 months left) - $11,465.63/$293.87 monthly payment

Moderately High Interest (non-deductible)

Car loan (7.99% interest, ~70 months left) - $16,765.14/$297.92 monthly payment
Credit Card 1 (7% interest, $1,000 limit) - $969.99

Deductible Moderately High Interest

Private student loan (8.x% interest [variable], ~284 months left) - $32,112.48/$270.97 monthly payment

{note - this is likely around 6.5% tax adjusted}

---Begin Building Legitimate 3-6 month EF Here---

Low Interest

Credit Card 3 (N/A interest, $1,500 limit) - $700 @ 0% for 12 months (balance transfer)
NelNet graduate school loan (in-school so not paying at the moment) - $10,250.00

And move the 0% card to the appropriate place after it starts charging you interest

When you're left with only debts that are less than 4% (or with 0 debt!), start working to save 15-20% of your income towards retirement. That should be your goal. Something to work towards, not something to beat yourself up over.

-------------------------------------------

Some potential steps to help you out:

- Put student loans on deferral if you can. Would free up $271/month that could be paid towards higher interest debt.
- Prune your budget starting with the advice DS presented earlier. Examine your largest monthly expenses 1st. Look at the $400/month expenses before trying to decide if it's time to switch to generic toothpaste.
- And cut back on fast food

I eat out too much too, so I know it's a gold mine for freeing up cash if you can eat at home more often.

- Work to pay as much towards the debts as you can. Don't fall into the 'I can lower my payment' mentality. The bigger payments you make the faster the debt will go away, and the sooner you'll be free to save all that money for yourself!

**DanielB** · 02-14-2011, 04:55 AM

Thanks for the additional feedback! I feel like I've made great progress so far:

1. Sold the Website over the weekend and my net of $960.70 has already been paid to the 22% credit card balance, posting today. This has allowed me to reduce my monthly expenses by $39.99 (Website fee).
2. Changed my federal tax withholding this morning to gain an additional $42 per week in cash (have been getting that all at the beginning of each year as a tax refund, so now I have access to my cash quicker)
3. Took $700 from the 0% card and will apply it towards the 22% credit card balance (waiting for it to clear my bank)

I am very confident now that I can payoff all of the credit cards by June. I am slightly optimistic that the personal loan will be gone by the end of this year, as well.

This forum offers such great motivation!

**DanielB** · 02-14-2011, 04:57 AM

Oh, and forgot I've also started contributing 2% to my 401(k) again (maximum for the 50% match). So my actual weekly take-home pay increase will be closer to $32, but still worth it.

Am I on the right track?