Credit Card Debt

[cdorfish]

Hello everyone!

Been lurking for about a week now, and this is my first post!

I've been trying to follow Dave Ramsey's first couple steps for a little while now, but I always find myself going one step forward, two steps back.

I got married last June, and we combined all of our finances, except my credit card payment, loan payment, and student loan payment. We combine savings and all bills for the house and food.

I make approximately $577/week. I keep enough in my account to pay my CC payment, loan payment, and student loan payment. I also keep enough to put gas in my car, but I get reimbursed from my job for that.

I have $1943.59 on my credit card at 14%. The minimum payment is $45, but I've been paying $350 every month towards it.

I have about $2800 built in personal savings (separate from my husband's, I was/am saving to buy a new car.).

My question is, should I pay off my credit card debt and use a lot of my savings?

Thanks!

[AJSimon]

I'm not Dave, but if you called his show, I suspect that he'd tell you to fully combine your financial particulars with your husband's - including your debts, even if they are only in your name (or your husband's). That might be part of the reason why you have a little difficulty getting traction - you and your spouse sound like you're on two separate pages (even if you're reading the same book).

That would probably be the first thing I'd do. Then, if you haven't already, save the $1,000 emergency fund for Baby Step 1 (I might earmark whatever portion of your combined savings is needed to complete this step). What happens next depends on your financial situation after you and your spouse get on the same page. If you throw $350/month at your credit card, even with the interest, it should take you less than a year to clear it out. But maybe once you and husband have figured out your budget together, you'll have more than $350 available each month to pay it down.

[kork13]

As I recall (correct me if I'm wrong), Dave Ramsey recommends starting off with a $1k Emergency Fund, then powering through your debts as fast as possible, snowballing the payments until the debts are wiped out.

In my opinion, I think I'd go for putting the 14% credit card to bed IMMEDIATELY, since you have the savings to do so while still maintaining that $1k EF. 14% interest will eat you alive.

From there, you'll have $350/mo available to keep working on your debts. I'd probably take $50/mo to slowly build up your savings, then use the remainder on your debts. What are the balances and interest rates on the student loan, and on the mysterious other loan? I break from Ramsey's advice slightly, and I'd take whichever loan has the highest interest rate (not the lowest balance, as he recommends), and send the $300/mo to that loan in addition to whatever you're currently paying on it. Once that loan is toast, do the same thing with the final loan.

Once you're out of debt (hooray!!), send all of that money into savings in order to build up a good buffer in order to prevent yourself from having to get back into debt for whatever reason.

BTW... when you pay off that credit card, don't charge one more red cent to it unless you can and will and consistently do pay it off every single month. NEVER carry over debts on a credit card, it's like getting sucker-punched every day because those high interest charges just pile up and up.

[Gailete]

I'm curious as to the why of you having kept the credit card, student loan, etc. sperate from the rest of the finances. Whose idea was it? It is hard to get two people to be on the same page, so without knowing how much those other debts are and the interest rate, it is hard to give thoughtful advice. Especially with the way your finances are set up. Is it kept separate because your husband doesn't think he should pay on them or he thinks they are totally your responsiblity? Same with saving for a car. Why isn't that in the family budget as well? If he needs to finance a car will he use the combined earnings or does he have his own money set aside for that?

Just reading your post it reminds me somewhat of when I got married the first time. I gave him my check other than $25 for groceries and he did who knows what with it and his. BUT, I couldn't write a check from our joint account, or get any money from him without an argument or fight or permission ever. He paid the bills and anything spare I have no clue what he did until the day I told him that he wasn't going to have my paycheck anymore. I wasn't making enough to splurge with, that is for sure, but if I needed a new pair of nylons I didn't want to have to beg for the money!

Hopefully things aren't like that with you two, but it sounds you really aren't a team when it comes to finances. Finances and disagreements about them are one of the biggest causes for problems in a marriage, so things do need to be discussed. I hope you are doing that.

One thing I found that helped when I was still working and got a mileage reimburement, was every week I wrote a check for the card I charged my gas to, to however much I had spent. When I got my reimbursement, I put enough in the checking to cover those checks and sent them on their way, of course now you can pay on line. Anything left from the reimbursement I put in a savings account that was only for car repairs, maintenance and if I had worked long enough to replace the car. I still remember the day getting a call from the garage telling me it would be around $500 to repair it and I was, okay, no problem. I had enough in the account to cover the bill. Prior to doing that with the money, I would have had a heart attack sensation to think I had to come up with that much money or would have to charge it and make payments. One of the other girls at work used her mileage to help her live higher than her paycheck allowed, until she went bankrupt. Mileage reimbursements are not free money. Any that isn't needed for gas needs to be saved until needed for the car. Your husband and you could be doing this together if you want if he has the same deal at work.

[cdorfish]

Thank you everyone for your feedback.

Let me clarify, my husband and I decided this for ourselves. We chose this way to separate our finances, because it works for us. My husband is very good with money, pays our bills on time, and I contribute what I can to our joint bills. I fully trust him with that aspect of things. He does not restrict my spending on necessities or give me an allowance. I have full access to our money, as does he, and we are a team. With that being said, I have this debt due to stupid decisions I made before we were together, and I don’t think it’s fair to make him pay for it.

Like I mentioned, those stupid decisions I made included spending on my credit card with the high interest rate, and then opening the personal loan as a way to consolidate my debt without a way to charge on it. I opened the installment loan (again, prior to being with my husband and again, a stupid decision), had all my credit card debt switched to it, with the intention to not use my credit card again. That didn’t work. I now had this loan and the credit card debt. Stupid decisions.

As kork13 pointed out, this is the time I’m going to do it right. Once it’s paid off, I’m going to put it in our safe at home and only use it once every 3 months for a small purchase and pay it off right away, just to keep the card open. I got this card when I was 18 so it’s my longest running credit, and I don’t want to ding my credit score for closing that card.

Credit Card
Balance: $1,943.59
Limit: $8,000
Interest Rate: 14.36%
Minimum Payment: $45

Installment Loan
Balance: $4,617.34 (started at $6352.40)
Interest Rate: 14.74%

Student Loans (divided into 4, as per my loan servicer)
1. Balance: $27,287.02
Interest Rate: 6.8%
2. Balance: $9,427.40
Interest Rate: 7.9%
3. Balance: $24,046.56
Interest Rate: 5.41%
4. Balance: $1,359.56
Interest Rate: 6.41%

I was on the payment plan based on how much I made, and it made my minimum payment $99.39 for all 4 together. (1-$43.30, 2-$14.71, 3-$39.15, 4-$2.23). This will be changing soon because I have to submit my tax return to see what my payment will be this year, but I haven’t gotten that back yet.

With all that info, my priority question is if I should pay off the credit card with my savings. I have $2800 in savings which is earning so little interest, it’s not even worth mentioning. Should I put everything except for $1000 towards my credit card and then I can pay off the remaining balance ($143.59) with my next paycheck?

Gailete, I do think your idea of setting aside the reimbursement for my gas to save for car repair is a great idea.

And please realize that I understand the decisions I have made with money have been misguided and there is no need to mention that.

[Jluke]

I have $1943.59 on my credit card at 14%. The minimum payment is $45, but I've been paying $350 every month towards it.

I have about $2800 built in personal savings

$1945-350 = 1595, round up to $1600. this is how much I would put on the credit card today/tomorrow (well, really I would pay it all off but you seem hesitant). then with your next monthly payment pay it off entirely.

clean slate with the cc's...

Now you have an extra $350 to put towards the personal loan.

Hopefully your husband will "have your back" if you hit a snag while focusing on paying off the debt.


with that much debt between personal loan and student loans, are you really in a position to be saving for a car (new, used).?

[disneysteve]

NOTE: I typed this before seeing your most recent post. I'll review that and update later. I'm at work right now.

I've been trying to follow Dave Ramsey's first couple steps

we combined all of our finances, except my credit card payment, loan payment, and student loan payment.

I have about $2800 built in personal savings (separate from my husband's, I was/am saving to buy a new car.).

My question is, should I pay off my credit card debt and use a lot of my savings?

Welcome to the site.

I don't particularly care if people follow Dave Ramsey's plan or not, but I do get kind of annoyed when people say they are following it when they clearly aren't.

Baby step 1 is to save a $1,000 emergency fund. That means you shouldn't have $2,800 in a new car fund. You should have $1,000 in savings and that's it (except for money that may have already been in a retirement plan account).

Baby step 2 is to pay off all debt except your mortgage.

Are you and your husband doing a monthly budget together?
Is every extra dollar going to debt repayment?
You say that your savings is separate from his? What does he have and why isn't it being used to pay off the debt? You can't follow Dave Ramsey's plan by yourself. It needs to be a household effort.

What should you do? Put $1,800 from your savings toward the debt. Put any other non-retirement savings toward the debt. Work together to make a monthly budget cutting out all non-necessities and directing every spare dollar to debt repayment using the snowball method.

If you would prefer not to use Dave Ramsey's plan, then we'd need more info to advise you how to proceed.

[cdorfish]

Just as a note, we have the $1000 EF in savings, separate from the $2800. That is included in our joint accounts.

[cdorfish]

with that much debt between personal loan and student loans, are you really in a position to be saving for a car (new, used).?

That was going to be a follow up question. My car is 10 years old and has approximately 206,000 miles on it. I'm not sure if I should be buying a car with the amount of debt I have, but really if I'll need to buy a car if this one decides to give out.

[Jluke]

That was going to be a follow up question. My car is 10 years old and has approximately 206,000 miles on it. I'm not sure if I should be buying a car with the amount of debt I have, but really if I'll need to buy a car if this one decides to give out.

Yep, was wondering if that might be the case. Yes, you may have to buy a car soon.

So what's your next move on the credit cards? I sense hesitation...

[cdorfish]

Yep, was wondering if that might be the case. Yes, you may have to buy a car soon.

So what's your next move on the credit cards? I sense hesitation...

It's not really hesitation, it's just a mental game of depleting my savings that I've been working on. I understand that it's smarter to do so to get rid of the interest charges on my debt, but I guess I just wanted another opinion on it to make sure it'd be the right thing to do.

[bjl584]

Mathematically speaking, even if you have to finance the new to you car, the interest rate "should" be a lot less than the installment loan or the CC. It may in fact be better to put the $2800 toward those debts. How's your credit look? Or, is your husband going to put the car in his name?

[cdorfish]

Mathematically speaking, even if you have to finance the new to you car, the interest rate "should" be a lot less than the installment loan or the CC. It may in fact be better to put the $2800 toward those debts. How's your credit look? Or, is your husband going to put the car in his name?

My credit score is actually pretty good. According to my bank, it's 773. So I would put the car in my name, and you're right. I didn't think about it like that, my interest rate would be much better on the car loan.

[Jluke]

It's not really hesitation, it's just a mental game of depleting my savings that I've been working on. I understand that it's smarter to do so to get rid of the interest charges on my debt, but I guess I just wanted another opinion on it to make sure it'd be the right thing to do.

I know it's daunting to put a large amount towards debt, but you have to...

if anything, put some dollar amount on it today - $500 or more. the more the better.



if you reduce the amount by just $500 you'll save some interest.

schedule that payment yet?

[disneysteve]

Just as a note, we have the $1000 EF in savings, separate from the $2800. That is included in our joint accounts.

That's great.

Does your husband have any additional savings beyond this $3,800?