Dealing with Debt (newbie)

[Mercury96]

We are a family of 5 and trying to pay down, 2 cars, (mortgage) and about 18K in Credit card debt. We also have student loans to deal with.

Long story short, we screwed up and didn't pay attention to our spending when younger, but now are on a plan to be debt free in 2020! I work 3 jobs (big boy job 9-5, Retail about 12 hours a week, and shipt shopper when I can...don't laugh, I am averaging 30 bucks an hour when I deliver!). Wife works and also a bit at church not much but hey it's $50 every week!

Right now my biggest question is this:

We have a car note that has about 3800 left to pay off, but it is a low interest rate (2.8%). I would prefer to throw everything I have at that and free up the $300 monthly, so that I can really start chipping away at the Credit card debt. I know they say hit your higher interest payments first, but this seems to make more sense to me to free up more monthly, and in about 8 months take out more of our Credit cards quicker.

We also know that we will see a tax return next February, and my belief is that it would be better used paying off high interest credit cards than in savings.

just wanted to get some thoughts as we are very new to this, but I hate owing other people money!

[disneysteve]

Welcome to the site!

You are correct that it is better to put any extra money toward the highest interest debt. That will save you the most interest and get you debt free the fastest. So forget about the car loan and focus on the credit cards.

As for savings, you definitely need an emergency fund, especially with a family of 5. I'd say a minimum of a couple thousand dollars to start. Everything else goes to the debt.

If you want more specific advice, the more details you can provide, the better, as far as income, expenses, details of the debts, etc.

[disneysteve]

Also, if you are already anticipating a tax refund, change your withholding now to minimize that refund and put more in your pocket every week that can go to debt repayment sooner rather than later.

[msomnipotent]

Paying off a lot of debt is multifaceted. If you are using your credit cards because you have had emergencies come up and no money to pay for them, then set aside some money for an emergency fund. (I really like having our internet bank automatically take money out of our checking account the day we get paid. I don't even notice it missing. And if you are going to adjust your withholdings, I would really advise you to start the automatic withdrawals.) If you are charging just because you are overspending, plan out a reasonable budget.

I know it makes sense in the long run to pay off higher interest first, but I liked to pay the little bills off first. I would pay off the car first, too. The only problem is that a lot of people would find a way to spend that $300 instead of putting it all towards credit card debt. You have to be disciplined to stick to your payment plan and not treat yourself to a new wardrobe just because you feel like you need it. I found that it was much easier for me to stick to a plan when I made it myself, instead of doing what "should" have been done.

[Jluke]

is the 18k credit card debt all on one card or more than 1 card?

can you get a 0% transfer card?

fill in these blanks to help; delete/add as needed:
CC1: amount owed, rate, minimum payment
CC2: amount owed, rate, minimum payment

Student Loan 1:amount owed, rate, monthly payment, # of months remaining
Student Loan 2: amount owed, rate, monthly payment, # of months remaining

Car Loan 1: amount owed, rate, monthly payment, # of months remaining
Car Loan 2: amount owed, rate, monthly payment, # of months remaining

Finally, figure out Income - expenses = "savings"

[Mercury96]

Thanks!

Already have as much coming in as possible. The Wife is the one I am trying to convince to not get the huge tax refund.

We have a small war-chest for savings. Not a lot, but there for emergencies.

Reasoning to pay off the Auto loan first is it gives us more flexibility, but I get your point about high interest first.

[snafu]

Welcome to SA. We're a pretty diverse bunch but we care about using money to benefit circumstances as effectively as possible. Many of us have been in debt to our eyeballs sometime in the past.

Questions aren't meant to be intrusive, we want to give answers that help your circumstances.
For example, is DW aboard and cooperating with the idea of paying down debt? Do you know your credit score? It has potential to help you qualify for a low fee, 0% CCs, a major cost cutting benefit.

It's helpful to list all June bills in columns that identify total balance owed, interest identified/added, sum paid; repeat for July. You need to know how much of your net income melts away in interest added to mortgage, paid for each of two car loans, SL interest and added to all of the CCs.

Experience has taught it's critical to put all but one CC in the freezer. That remaining card is inconveniently hidden in the trunk under the spare tire. Reverting to cash for a period of time offers potential to keep everyone mindful of spending. Cash must be tracked spend by spend; once you run out of cash...all spending stops. Sounds harsh but money is allocated to categories in advance so needs are funded...it's the 'wants' that get slowed down until the system gets more familiar.

As explained by others, you need to contribute to a designated 'Emergency Fund.' I'm confident you can get it to $ 1,000. quickly and suggest DW contribute $ 50. per month while you contribute $100. on top of any savings until it gets to a minimum $ 2,000. Revisit how best to get to $ 5K.

[Petunia 100]

Thanks!

Already have as much coming in as possible. The Wife is the one I am trying to convince to not get the huge tax refund.

We have a small war-chest for savings. Not a lot, but there for emergencies.

Reasoning to pay off the Auto loan first is it gives us more flexibility, but I get your point about high interest first.

Is cash flow an issue? If you are having trouble making ends meet, then focusing your efforts on the $300 per month car payment can make sense.

Of course, a simple solution to a cash flow issue is to adjust withholding.

[Petunia 100]

is the 18k credit card debt all on one card or more than 1 card?

can you get a 0% transfer card?

fill in these blanks to help; delete/add as needed:
CC1: amount owed, rate, minimum payment
CC2: amount owed, rate, minimum payment

Student Loan 1:amount owed, rate, monthly payment, # of months remaining
Student Loan 2: amount owed, rate, monthly payment, # of months remaining

Car Loan 1: amount owed, rate, monthly payment, # of months remaining
Car Loan 2: amount owed, rate, monthly payment, # of months remaining

Finally, figure out Income - expenses = "savings"

That's very good advice. Pay no interest at all, if you can. Here is a great offer from Chase Slate: https://creditcards.chase.com/a1/sla...D=209753234153

[Mercury96]

All:

Thank you for the information and I am working to get some of these into practice.

We have moved to cash. (I HATE DEBIT CARDS)
We are currently putting about 175/month into savings.

It is a cashflow issue which is why the $300 monthly would open us up some to breath easier on bills, and apply those funds to CC's to pay off more efficiently.

I will look into the transfer of balance on Credit Cards. I believe this will be critical in paying off the CC's more efficiently.

In the end, that is my goal is to utilize our money efficiently. Frugality has set in, and we are both going for the goal. Still some debates on how to get there, but we are focused. I'll check in after Sept. give you all some updates, but already in the past month, results are noticed. We had a few emergencies come up and we were able to tap funds and not CC to pay. Made me feel much better to avoid paying more on emergencies.

[Smallsteps]

As long as you stay focused saving can get addictive when you start making progress.
I have had a few people whom freed up their cash flow but it became too easy of a temptation..... and in the end they ended up spending at least part of it instead of saving it all.

[snafu]

If you choose to apply for 0% CCs, it's important to pay attention to 'fees' whatever the terminology and understand that you must clear the balance within the stated time frame. If you do not pay in full, you will be charged at least 22% interest and be in an even larger, more difficult, debt scenario.

[msomnipotent]

If you choose to apply for 0% CCs, it's important to pay attention to 'fees' whatever the terminology and understand that you must clear the balance within the stated time frame. If you do not pay in full, you will be charged at least 22% interest and be in an even larger, more difficult, debt scenario.

I was going to say the same thing. I have seen "0 fee balance transfers" that charge 4% upfront. It isn't worth it to transfer smaller balances unless your cards have really high interest rates.