Seeking opinion on wiser strategy

**Petunia 100** · 03-06-2016, 07:52 AM

I would pay off the furniture and the "4 small insignificant debts" and put the rest in savings. Juggling so many payments is stressful. Also, you need cash on hand so you can stop relying on credit to pay for things.

How is your credit rating? Have you considered transferring that 25.99% credit balance? Chase Slate has a 0% for 15 months offer with $0 balance transfer fees. There are other good offers out there, too.

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Do you have a written budget? If not, it is time to start working on one.

**NayaBlu** · 03-06-2016, 08:03 AM

Those little insignificant cards are not the issue. They don't really total up to much more than what I'll pay off when I get my extra pay this month. That's why I didn't ask about them.

The real issue is about what's wiser to use the $8300 on. Paying off the car loan or half of the visa.

Yes, I have a written budget and stuck to it pretty faithfully. These credit card bills come as a result of some nightmare issues with the rental that we have. Which, by the way is currently listed for sale and hoping that it sells ASAP.

**disneysteve** · 03-06-2016, 12:32 PM

Originally posted by NayaBlu View Post

But strictly from a financial standpoint, what would be the most effective way to pay off these debts?

Strictly from a financial standpoint, the most effective way to pay off debt is highest interest rate to lowest interest rate regardless of the outstanding balance. That is what will save you the most money and get you debt free the fastest.

That said, things aren't always that black and white. Sometimes there are deadlines involved, like the furniture store, for example, that needs to be paid by a certain date. Also, if cash flow is a major problem, it sometimes makes sense to wipe out some smaller debts and eliminate those monthly payments. Then you can snowball that against the higher interest debt but give yourself some breathing room.

One thing you said is of major concern:

We are getting into considerably more debt each month

Is this because of the rental property? If so, sit down and figure out how much it is costing you each month and factor that into the asking price. It might be worth dropping the price to sell it faster to avoid it bleeding you dry.

In the meantime, you need to take a serious look at your entire budget, cut everything you possibly can, and throw every spare dollar at the debt. If you'd like help with that, post your budget and income info and we'll be happy to take a look.

**greenskeeper** · 03-06-2016, 03:10 PM

Do you have emergency savings? If not then pay off the furniture store and then the minimums on the other debts until you have at least $5k in an emergency savings account. Once that is established then pay the highest APR debt first.

**LivingAlmostLarge** · 03-06-2016, 03:35 PM

How much longer before you get rid of the rental? How much of a drain on the budget is it? Will you have to bring money to the table to sell? Should you save cash for that?

**msomnipotent** · 03-07-2016, 07:30 AM

I have a few questions. What is the interest rate of the 4 other cards and the car loans? What is your credit score? Is the $16,000 card or any of the other cards near their limit?

If this were possible, I would pay off the 4 cards, make payments for the furniture to pay it off in 8 months (I know you have 10 months, but just in case), pay part of the $16,000 card then transfer the balances to the 4 other cards to reduce your balance to limit ratio. How much you pay on the $16,000 depends on your other cards limits. Having a smaller balance to limit ratio should help your credit score, which would help reduce your interest rate. I think this would make financial sense even if you can't get a 0% transfer, depending on the interest rate for the other 4 cards. All the cards I had charged 4% right off the bat for a 0% transfer fee, but transferring at the normal rate was free. You would still be saving money that way. I would also call the company and ask that the rate be reduced. I would also put a little towards an emergency fund and to pay whatever fees pop up when selling the rental. You can't pay off your cards if you have to keep using them for emergencies. Unless the interest rate for the cars are high, I would let them ride until I had a decent emergency fund.

But speaking from experience, there is a lot of relief when you have a lot of debt hanging over your head and you pay off a bill. If the stress is getting to you, it might be better to just pay off the furniture and the car, and then start hammering away at the credit card. I would still advise you to put away some cash. There are always unexpected expenses when selling a property, like a buyer demanding something be fixed before the sale goes through or the tax stamps, if your county has those.

**dczech09** · 03-07-2016, 07:35 PM

Originally posted by NayaBlu View Post

The real issue is about what's wiser to use the $8300 on. Paying off the car loan or half of the visa.

Scenario A: Payoff car loan, free-up $500 of cash flow. Go after credit card.

In this scenario, it would take about 23 months to be free of both Car Loan 1 and the VISA.

Scenario B: Payoff half of credit card, then focus on credit card until it is paid off. Go after car loan after.

In this scenario, it would take 25 months to be free of the credit card, and an additional 10 months payoff the VISA.

Based on the information that you have given, I would say that Scenario A is your best bet. But this is solely based on the two options you had pointed out. There are other routes you could go.

Here is the course of action I would recommend...

Total: $10,000
Furniture Store: $1,700 ($8,300) - This needs to be a priority due to time constraints.
Small Cards: $4,000 ($4,300) - I would focus on these if only to free-up cash flow and to get them out of your life. They are not "insignificant." They have to be paid off at some point, and there is no reason to keep debts just because you do not believe them to be a problem. NEWS FLASH: All of your debts are the problem! If you want to be debt-free, this needs to be your mindset.
Car Loan 1: $4,300 - This will bring your balance to $3,500. At $400 per month, this would take about 10 months to pay off.
VISA Card: At $900 per month, this would take about 23 months to pay off.
Car Loan 2: Focus on this last. By the time you get to it, you should have over $1,300 per month that you can throw at it. At that rate, it will not take much time to pay this off.

Please note that my calculations do not assume any cash flow that would be freed up by paying off the smaller credit cards totaling $4,000. Factor in that cash flow into the paying off of debt should speed up the process.

Effectively, I am recommending that you attack your debts in order of smallest balance to largest (debt snowball method). Based on the information provided, I believe this would be the most effective means of going about this.

Other things to notes:

Do you have an emergency fund? You should have at least 3 months worth of expenses set aside just in case of emergencies. This will help prevent unforeseen events from becoming new debt.

Have you stopped using the credit cards? You need to stop using them "cold turkey." I would destroy the 4 smaller credit cards (keep the accounts open of course, but cut up the cards). I would also stick the VISA card into a sandwich bag, stick it in a bowl of water, then put that bowl in the freezer. You need to eliminate the ability to use your credit card. If you can keep the VISA in your wallet and simply not use it, then great. But based on your CC balances, I am getting the feeling that you cannot resist the temptation to use the card. There is nothing wrong with that - please do not take that the wrong way. My opinion is that this may be a good idea for you.

Have you considered selling Car #2? Unless your household income is six figures, you have too much money tied up in cars. I would consider selling Car #2. Otherwise it is going to take FAR too long to get to paying it off! Sell the car and purchase something less expensive. There are plenty of cars that are reliable, yet inexpensive.

**NayaBlu** · 03-08-2016, 01:29 PM

Thank you

Ok thanks everyone for taking the time.
The other small cards, I call insignificant because we'll be paying them off when we get our extra pays in May to do this. That's why they really aren't top of my priority list. I feel like I have a handle on that.
The furniture needs to come out of this $10,000. Since I just want to make sure that I don't get hit with that interest should something happen and I can't come up with the $1700 before it's due. The way things have been going, I just can't chance it.
The interest rate on both car loans are at 3.5 %.
My thoughts were really to pay off car #1 to get that $500 cash flow to then go after the visa. Right now, I feel like I'm chasing my tail making a payment to both the car and the visa. Paying only half the visa won't free up anything. I'll still be digging myself out.
So here was my thought. If I pay off the car loan and then take that $500 per month and apply it to the visa, I should be able to have it down to at least $12,000. by tax time next year (I am having trouble making this visa payment of $400 along with the $500 car payment so even if I can pay $700 per month to visa that should bring it down to about $12,000. By next years tax time. I'm not too great with calculating so I can't know how much principle I'd be knocking off and what that $16,000 card would look like in 12 months but hopefully by doing that, I can throw my taxes on it in 12 months time and almost be rid of it. By then, I'll only have another year to go just by making the regular car payments on the second car loan so I'm sure I could get that paid off within six months time after that. It's not ideal and I've never been in a situation like this but for this rental property.
We have had several sets of tenants that have done us in. We are hoping the house sells as we won't be able to carry it on our own. We carried it a year ago and this is how we accumulated this credit card debt. We went through our emergency fund pretty quickly. Our credit seems ok. We've never been denied any but I feel like we have too much available to us.
I am in Canada so we don't score the way you do in the US. At least I don't think so. Although I would love to get educated so I can pass on some better information to my children.
We have many credit cards that are a far cry from being near their limits. However, my husband and I constantly have this discussion. I think if we were to apply for a loan, those cards, even though we don't owe anything on them will reflect poorly because we will have the ability to use them. Am I correct?
He says that cancelling the cards look worse to lenders. Is he correct?
thank you for all of the helpful advice.

**LivingAlmostLarge** · 03-08-2016, 01:41 PM

How much of an emergency fund do you have? And what is the situation with the rental? Can you drop it more and just bring money to the table to sell?

I need bigger picture to help maybe plan some strategies. Because the CC debt was caused by carrying the rental without tenants what happens if big repairs happen or tenant stops paying? You've I assume run out of your EF. Now what are the options?

Sell house at big loss? Bring cash to table from $10k and CC? Then declare BK to clear the cards you used to get out of the rental? Just posing ideas. Need a clearer picture.

What is your retirement looking like? What about selling your house and moving into the rental?

**NayaBlu** · 03-08-2016, 02:48 PM

I've pretty much given all f the information. I've stated that we used up the savings. The house is up for sale. The tenants have stopped paying and have been evicted. They are out the door as of April 1 so this is the problem. We have dropped the price of the house to what we paid for it. There is no money to be made there now at this point. We thought if we had more time to sit on it we could probably have made at least $20,000. We have owned it now for 6 years. Soooo, ya we have bottomed it. We just need out. We have factored in real estate and closing fees so I think we should break even if we can get it sold now.
We are in good shape for retirement. We have very good pensions so we aren't worried about that.
My husband is completely against bankruptcy. He dang near hit the roof when I said that it may be our only option. I don't know how we will carry this rental if we don't sell the house. I did think that maybe we should not pay anything off with that $10k and use it sparingly to keep that rental afloat. However, if I free up $500 a month, it would make up most of the mortgage payment which is $600 per month. Then we would only have to worry about the utilities.
His rental is going to cause one of us to have a heart attack.
As for selling ur house and moving into the rental...never happen. We don't live big and there would be nothing to gain doing that.

**snafu** · 03-09-2016, 07:34 AM

Naya, if you are in AB, you are in neophyte h_ll both provincially and federally. In case you haven't notice neither have any level of knowledge or expertise. Ministers barely know how to find their way to their office let alone basic understanding of their portfolios.

You've been given excellent advice but are free to move forward as you wish. You explain you wish to be more financially knowledgeable having realized that you're underwater and over your head. I suggest you begin by getting one of the four free credit reports entitled, to understand how credit grantors view you. The comments offered are meant to be helpful...
I don't see any evidence of a budget where you pay yourself first [savings] and allocate sums based on take home income.

You've chosen to be a landlord for 6 years without following the formula to retain capital and vacancy expenses [in your community].
How much co operation do you and your realtor anticipate from tenants who are being evicted? Unless you are in lower mainland or TO, buyers want and expect 'move-in' ready.
You decided to spend huge sums not yet earned.
Car $ 23,800. Furniture $ 17,000.? VISA $ 16,000.
Mortgages houses #1, #2 unknown.

I suggest you reduce all discretionary spending to nearly nil as a starting point. What action can you and DH take to increase income? Overtime? part time jobs? selling stuff you no longer use, no longer need? Make endless calls to see if you can move VISA debt to a lower interest card without or at least a low fee. How much interest did you pay 2015? It's ghastly to have $ 363. added each month if you're only paying $ 400. It's distressing to see nearly 26% interest charged by VISA when savings pays out about 1%.

**NayaBlu** · 03-09-2016, 05:56 PM

Snafu,
I am not at all offended by advice given. It is absolutely wanted.
So we do have a tax free savings account that we had contributed to biweekly but we drained it with this rental.

So here's the deal with the rental. I see this happening so so many people so maybe my situation will benefit others.

When I met my current husband, I was in the midst of splitting with my ex. I bought the house and moved into it as the relationship progressed, we weren't prepared to sell either home just in case things didn't work out with us. So we decided to rent out mine and move into his. So my home is on the market now and it is literally a mess. So given that we have been married for a few years and having these nightmares, we have to get out of it. It's time.

The furniture debt is not $17,000. It is $1,700. We bout it on a no interest plan last year, thinking we would use our tax refund to pay it and that is what we will do.

you lose a lot when you split up with someone and start over. I feel like we would have done considerably well had we never kept this rental.

I'm way ahead of you in the spending. I can truthfully say that other than the smaller credit cards and the furniture, our frivolous debt hasn't amounted to a whole lot.

I am disabled so I cannot contribute to the income and hubby does already work overtime with his job. He makes a very decent wage at $100,000 annually.

I agree about the interst rate in that visa. I gained some insight from reading something here where someone transferred there credit card debt to a LOC until they got it paid off with a much lower interest rate. I think that might be a good idea for us. We hadn't thought of that. Opinions?

**LivingAlmostLarge** · 03-12-2016, 06:45 AM

It would be a great idea to transfer your debt to lower interest or 0% CC or even a line of credit.

What is the timetable for the rental house being sold? you are in a black mudhold and I'd rather pay off the furniture and probably keep the rest as cash until you sell just in case they want a repair or something you weren't prepared for. It'll happen selling the house.

**Jovanny** · 03-18-2016, 12:49 AM

If you pay off the car loan, you will be free from a major debt. I think you should consider paying it first.

Seeking opinion on wiser strategy