Am I on the right track?

[disneysteve]

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.

[jpg7n16]

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

[jpg7n16]

- 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.

[DanielB]

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.

[greenskeeper]

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

[DanielB]

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.

[DanielB]

Been digging my way out of a mess and want to make sure I'm on the right track! Any feedback would be appreciated, especially if it gives me new points or ideas to think about. I'll start by describing my financial situation, then give an explanation of why it's in the shape it's in.

Assets
Car - $10,000
Website - $1,000
Vanguard 401(k) (I've stopped contributing for the time being) - $700.36
ShareBuilder brokerage account - $29.91
ShareBuilder Roth IRA - $67.22
Total Assets - $11,797.49

Liabilities
Credit Card 1 (7% interest, $1,000 limit) - $969.99/$50 min. monthly payment
Credit Card 2 (22% interest, $5,500 limit) - $3,490.66/$100 min. monthly payment
Credit Card 3 (N/A interest, $1,500 limit) - $0.00
Credit Card 4 (N/A interest, $3,000 limit) - $0.00
Car loan (7.99% interest, ~70 months left) - $16,765.14/$297.92 monthly payment
Personal loan (16.x% interest, ~55 months left) - $11,465.63/$293.87 monthly payment
Private student loan (8.x% interest [variable], ~284 months left) - $32,112.48/$270.97 monthly payment
NelNet graduate school loan (in-school so not paying at the moment) - $10,250.00
Total Liabilities - $75,053.90

Note: Graduate school loan balance is expected to total ~$40,000 when I graduate, giving me a total debt load of $104,803.9 (if considering my debts at today's levels). I should graduate in early 2012.

Monthly Expenses and Income
In addition to the above, I pay ~$84/month for cell phone service (have no home phone), $100-$130/month for electricity, $775/month for rent and water (this will probably be increasing to $850 when my lease is up for renewal in May, though I will try to negotiate it as low as possible), $100-$200 for groceries and other true necessities, and $100-$120 for gas. "Frivolous" expenses are Internet for my iPad ($25/month), and cable TV+Internet access ($58/month on special, but will rise to $8x.xx/month in April). I need Internet at home for school, but I don't need cable TV and Internet on my iPad is absolutely not a necessity - I could downgrade to basic Internet through my cable company for $26.95/month. I also pay $10.49/month for Netflix. Car insurance is about $65/month. The cost to run my Website (which has gotten rather large) is $39.99/month. Clothes and other expenses that arise cost me anywhere from $100-$200 per month.

This is notable because altogether my expenses for necessities, a few frivolous things, and debt service comes to roughly my take-home pay amount of ~$2,418/month. My salary is $38,000/year.

Why I am in this situation
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 (don't really want to get into all the details here, but it was one of the saddest situations I've ever seen). She is back on her feet now. I also spent money on things I didn't need. I have a gadget obsession that I need to get over (and have been getting better at)! I like to eat out a lot (I've done better cutting that out over the past couple of months).

The car and car note are a real travesty and I'm an idiot for getting myself into a situation where I'm $7k underwater on a car note. In 2008, I purchased a 3-year-old luxury vehicle which was made by an auto company known for quality issues. That was stupid of me. I spent $3,500 fixing it in 2010 alone (while still paying on a 5-year car note) and finally made the decision to cut my losses and buy a better vehicle (I ended up with a very fuel-efficient, one-year-old Toyota with a very good warranty). My luxury trade-in was underwater, so that just made the Toyota loan even worse. In hindsight, I should have done something different, though I'm not sure what. The big trouble now is that I don't have GAP insurance as part of the car note (through Toyota Financial) and I also cannot get GAP insurance through my car insurance provider - if I total my car, from a financial standpoint I'm screwed!

My short-term goals
My short-term goals (to complete in 2011) are rather simple: I want to payoff both credit cards, as well as build a $1,000 emergency fund.

Upcoming "extra" income and my plans for it
My tax return is roughly $1,600 and I am in the process of selling my Website for $1,000. That's $2,600 in "extra" income I can count on within the next couple of weeks. Here's what I'd like to do with it:

- Payoff CC1 ($969.99 balance)
- Build $1,000 efund
- Leave $500 cushion in checking account
- Put roughly $100 extra towards CC2 ($3,490.66 balance)

Note that selling my Website also frees up $39.99 in monthly cssh outflow.

What should I do?
So I feel like I'm on the right track. I have a pretty good credit score (between 700-720) and have never missed a payment or reneged on any debt, and I don't plan to. I'm not "in over my head," so to speak, but at the same time if I lose my job or run into a big and unexpected expense I'd be done for. It is imperative that I improve my situation ASAP!

So, I'm open to suggestions.

- What should I do about the car (if anything)?
- What should I do about my situation overall?
- Are my plans for my "windfall" appropriate, or is there a better use for those funds?

I'll listen to any guidance you guys can give. My goal is to be completely debt-free by July 2017.

Thank you so much for taking a look at my post!