Help!

[chopchop]

I've been surfing and reading these forums for a while now and I'm still uncertain about how to proceed. Yes, I'm slow. I would like some personalized advice if you wise people don't mind helping.

So here's my deal:

CC#1: $6319 0% APR for another 12 months
CC#2: $8815 0% APR for another 12 months
Student Loan: $10215 4.25% APR for another 13 years
Home Equity Loan: $36585 6.85% APR for another 12 years

Personal Savings: $2400
Retirement Accts: $13285

Extra money available to put towards debt/savings every month: $900

My questions: I want to build up cash savings. I also want to pay off my bills in the order that makes most sense. I've been paying extra towards my bills and I've eliminated a lot of debt believe me but I want to maximize the extra amount I have available to spend. I've read about the debt snowball and I've read that I should try to pay off the bill with the highest interest rate. I can't get myself together and decide what I should be doing first and in what order.

Your kind advice and wisdom is appreciated.

[disneysteve]

In general, you should pay off the highest interest debt first,and then move on to the next highest and so on. The complicating factor is those 0% deals. You want to be sure you can pay them off before the 0% period ends and the rate gets hiked up.

Also, don't forget that the interest on the HEL is tax deductible, so it isn't actually costing you 6.85%.

[maat55]

I suggest you read Dave Ramsey's book The Total Money Makeover, It's like a roadmap for your money.

[disneysteve]

I suggest you read Dave Ramsey's book The Total Money Makeover, It's like a roadmap for your money.

Dave Ramsey is a proponent of paying off debts from smallest to largest amount. While that works and gives a psychological boost to some, it isn't the best option from a strictly dollars and cents standpoint. Paying off the highest interest rate loans first will net you the most savings and get you out of debt the quickest. This is a topic that we often go back and forth about around here.

[dardhel]

True but in the same vein I would, without knowing the interest after the 0%, pay off the lowest CC first with the extra $900/mo in the next year and start paying on the second when that is done. After the cc's move onto the HES then student loan. I would though, after the CC's are paid off put some of the extra money/mo to some retirement savings.

That is just my advice.

[maat55]

Steve,

DR has spent 20+ years learning and advising as an financial adviser. He advocates this program because he found it works. For people who choose to slowly pay off debt, your advice applies. For those who want a highly motivating for quick results system, his plan works.

Just because you don't agree with one aspect of DR's plan, does not make his whole financial outlook useless. If everyone used his plan, this country would be much better off.

[disneysteve]

Just because you don't agree with one aspect of DR's plan, does not make his whole financial outlook useless.

True. I never said it did. His method gives a psychological boost that a lot of people need to get and stay motivated to get out of debt. That's a great thing.

There are others who don't need that psychological support and instead are looking for the system that will save them the most and get the debt repaid the quickest. For those types, attacking the highest interest rate first works best.

[Merch]

I would pay off the smallest CC first. You have 12 months of 0%. The chances are high you could get another 0% but that's not certain.

You're floating about $15k and the most conservative thing to do is pay this down rather than to continue to float it. Also, you would get rid of 24% of your debt.

My thoughts on DR are that mathematical his advice is not always best. But the people he caters to are people over their heads and don't know where to start. If your working with limited resources you do need to focus on one thing and see results to stick with it.

I am loosely following his plan now. I am on step 2, paying down debt. But my emergency fund is roughly $17k and not $1k and I'm still contributing to my 401(k) and will max it out again this year.

So generally speaking I find his advice good and consistent. Ans if you follow it, you should be better off then most Americans.

The basic philosophy is get rid of all consumer debt, 3-6 month emergency fund, 15% into retirement, pay of house, and lastly invest in growth mutual funds and real estate. I probably won't take his investment advise, but the other steps I find pretty solid.

I'm on the fence about paying off the mortgage, but might put a bounce in my step knowing that I own it and how little money I would need for expenses.

[maat55]

True. I never said it did. His method gives a psychological boost that a lot of people need to get and stay motivated to get out of debt. That's a great thing.

There are others who don't need that psychological support and instead are looking for the system that will save them the most and get the debt repaid the quickest. For those types, attacking the highest interest rate first works best.

Because I know you will never need this advice, I do not give it to you. But across the board, the advice is very helpful. My financial position is much better now than before I read DR's books. I refer the books because they are proven to help. You continue to get hung up on this one aspect, I refer the book for many more other reasons.

[aida2003]

Right now I think I'd save $900/mo. and I'd pay at least one of CC off just before the 0% deal ends.

[jIM_Ohio]

I've been surfing and reading these forums for a while now and I'm still uncertain about how to proceed. Yes, I'm slow. I would like some personalized advice if you wise people don't mind helping.

So here's my deal:

CC#1: $6319 0% APR for another 12 months

what is interest rate on this card when 0% expires?

CC#2: $8815 0% APR for another 12 months

what is rate on this card when 0% expires?

Student Loan: $10215 4.25% APR for another 13 years
Home Equity Loan: $36585 6.85% APR for another 12 years

Personal Savings: $2400
Retirement Accts: $13285

Extra money available to put towards debt/savings every month: $900

My questions: I want to build up cash savings. I also want to pay off my bills in the order that makes most sense. I've been paying extra towards my bills and I've eliminated a lot of debt believe me but I want to maximize the extra amount I have available to spend. I've read about the debt snowball and I've read that I should try to pay off the bill with the highest interest rate. I can't get myself together and decide what I should be doing first and in what order.

Your kind advice and wisdom is appreciated.

I would not worry about increasing savings just yet. I would take $900 and wipe away the larger card ($900 pays of $8800 in 10 months). Then lower the $6300 balance y by $1800 to $4500 before the rate expires.

If you could then transfer the $4500 to another low rate card, $900 would pay that off in about 5-6 months.

This means you could be cc debt free in 18 months.

At that point I would put $200/month into savings and invest $700/month for growth/retirement. This would double savings to $5k and nearly double retirement savings as well.

[noppenbd]

One other thing I would add is, if you cannot pay off your credit cards each month (which seems like a problem for you with the amount of balance you are carrying), you should stop using them. Some people put them in a cup of water and freeze them in the freezer, or just cut them up!

If you don't do this, you are going to spend a lot of time and energy paying them off, only to charge them back up again. True, 0% credit cards are not costing you any interest, but the mistake people make is thinking that they can continue to surf these balances around without any consequences. The credit card companies have millions of dollars to spend on trying to figure out ways to get you to pay them, and eventually they will beat you. Either you won't be able to find a 0% card or they will get you on balance transfer fees, or you will miss a payment and the APR will skyrocket.

[Diolla]

With Credit going the way it has I wouldn't count on another 0% offer real soon. As it stands you have $15,134 in 0% which is expiring in 12 months.

15134/12=1261.17 per month

Since you would not be able to get them both paid by the end of the 0% I would work on getting the one which has the higher interest rate at reset paid off and as much as possible on the other. Hopefully another 0% offer will be available and you can transfer what is left.

After the credit cards I would split it between paying off the HELO and building up an emergency fund so you don't end up back here the first time you have an emergency. The HELO may be tax deductible but the student loans are almost always deductible. Also there is risk associated with HELO's, your home is on the line, that isn't there for the Student Loan.
If the HELO is deductible you might want to contribute some extra to retirement before paying extra on it. I don't know your particular tax situation and this decision depends alot on that.

[chopchop]

Thank you everyone for the great advice. I have synthesized your opinions and decided to do the following:

1. Pay off card #2 as jIM Ohio suggested before the 0% option expires.
2. Pay off card #1 following that.
3. Split the extra monies between building up my EF and paying down the home equity loan.
4. Once EF reaches $16000(4 months of take home pay), increase investments/retirement to 15% of take home and put the remainder towards paying off home equity loan and then student loan.

Once again, thank you everyone for your help!