Too much of credit card debt....

[FoolFromAZ]

Other members already pitched in good advice, but I'd like to add my 2 cents as well .

First, if you posted your CC debt break down (balance and %for each card), you'd get more specific advice.

Anyway, IMO, you should start an EF since you have none and then if I were you I'd agressively chop CC debt next. Paying your debt off is a very good return vs. investing in the market (e.g. you mentioned 12% CC).
After the CC debt is paid off, you both should peruse 401k offerings with your co. If they're good (=T.RowePrice, Fidelity, Vanguard), I'd invest in them. That way you'd bring your MAGI down to qualify for a partial RothIRA investment probably.
If 401k's are bad, I'd consider an IRA and/or taxable investments. I mean, after using your spare $$ to pay-off debts now, I'd resist accumulating consumer debts again in the future. Instead I'd use that money for investing and paying your 2nd mortgage off.
Are considering a college fund for your kid?

One more question. What grocery stuff do you buy that you spend $1,000/mo.? That's a lot!!! How many people do you feed? Does the $1k include frequenting restaurants? Anything else?

Anyway, it's wonderful that instead of going with the crowd your family decided to stop and look at the debts and start doing something about them. Some other people just keep their heads in the sand and continue accumulating debts instead of wealth. So, kudos to you for that. Now stay the course and have your debts out of your life for good and then start accumulating wealth. Like DS mentioned, you can easily pay your debts off by 2009 X'mas. For me, having NO DEBTS by then would be the BEST Christmas gift.
You're young so you've got lots of time to build your retirement.

Thank you so much for your advice aida. I have 18 month old daughter. that $1000 includes grocery, medicine, baby's stuff, restaurant (we were going out pretty much every day as we reach home from work only around 7 or 7.30 PM), etc., I used to drink atleast 4 coffees a day, 8 or 9 bucks for lunch. Anyway I am cutting down everything.. I would like to reduce it to around $700.

[kork13]

No I dont have emergency fund. ...... I am depending on HELOC for emergency.

One caution I'll say for that... I saw it on another board here, but someone mentioned that if you find yourself in an emergency, such as you've lost your job, or something along similar lines, the person has seen it where the bank discovers you don't have the ability to make regular payments, and they can yank the HELOC from under you (basically freezing your account). Wish I could remember who said it or where...

But anyway, just one thought to keep in mind... relying on credit (of any kind) seems like a risky means of ensuring your financial stability in an emergency. I'd agree with above, and say you might want to allot a small portion of your money to go toward an actual emergency fund, like a savings or MMF account.

[debtfreecb]

Hi Fool from AZ

I am in the same situation. I've been on a debt reduction plan for 10 mos now and have paid down my overal debt of $72,000 to 64,000 in about 10 mos. I paid off my car last september and took that $570 car payment and I am applying to my credit card debt first because it has the highest interest rate. The interest that accrues on my home equity is tax dedcutible so I am paying that debt off last.

I am using Steve Ramsey's snowball debt reduction plan. If you read one or 2 of Ramsey's books, you will feel hopeful about your future and your ability to pay off that debt. Just have to be disciplined and PATIENT.

Good Luck

[maat55]

Pay your debts first, you earn plenty of money to invest later. Read also The Millionaire Next Door. I am 2/3 through it now and find it facinating. It talks alot about high income low net worth people, it will change your perspective of your financial health.

[tripods68]

The opportunity cost of waiting 1, 2, or 5 years will significantly puts you behind the 8 ball if you put if off later. Especially if you have significant income and want to maintain the lifestyle at retirement. The very least, you to have to start putting at min $500 a month because of "time value of money" at current age. Time is something you cannot make up once you get older.

However, you have plenty remaining to pay off your bills which is good than most average. So I would put the balance of paying off your bills, saving for retirements, and EF.

[maat55]

I would stay with a short term aggressive plan to get out of debt before investing, especially when the debt your paying off is high interest CC's. Hunting three deer at once is frustrating, go at them one at a time.

[kork13]

I'd have to disagree at least in part... while you're right, you can't put your focus on 3 things all at once, I think it is important to start retirement savings as soon as possible... I'd say you could focus a majority of your money to paying down the debt, but at the same time saving a small part of that debt payment (20%?) into some sort of retirement account. Tripod is right... time is always against you.

[FoolFromAZ]

Hi Fool from AZ

I am in the same situation. I've been on a debt reduction plan for 10 mos now and have paid down my overal debt of $72,000 to 64,000 in about 10 mos. I paid off my car last september and took that $570 car payment and I am applying to my credit card debt first because it has the highest interest rate. The interest that accrues on my home equity is tax dedcutible so I am paying that debt off last.

I am using Steve Ramsey's snowball debt reduction plan. If you read one or 2 of Ramsey's books, you will feel hopeful about your future and your ability to pay off that debt. Just have to be disciplined and PATIENT.

Good Luck

Hi debtfreecb,

Good to hear that I am not the only one in this position . I first thot of getting rid of Car loan and then go for CC as the minimum payment on each card wud be around $150 whereas the car payment is $550 per month. later on I decided against it. Yes I am reading Ramsey's book..

btw I am going to get 8K from uncle sam. Planning to pay one of the CC balances off.

anyway thanks for the advice and good luck to you too.

[FoolFromAZ]

I'd have to disagree at least in part... while you're right, you can't put your focus on 3 things all at once, I think it is important to start retirement savings as soon as possible... I'd say you could focus a majority of your money to paying down the debt, but at the same time saving a small part of that debt payment (20%?) into some sort of retirement account. Tripod is right... time is always against you.

Yes we are maxing out our 401K contribution although our employers are not matching our contributions. Now our net income has been reduced by $1800 every month due to this 401k contribution. Another thing is almost all credit card debt is under my name due to that my credit score is very low. But wife hardly has any credit card balance but her credit history is very short as she started working only last year. Now she got a new credit card with 0% promo apr for first year. I have transfered 6k balance from one of the credit cards to her new card. that helps a bit.

[jIM_Ohio]

I have balances in 6 credit cards. Total CC debt comes around $55000. I am paying $2400 every month for home mortgage. I have a car loan for $26000K, paying $550 per month.

Intrest Rate on CC ranging from 12% to 5%.
Intrest Rate on First Mortgage (243K) : 6.25%
Intrest Rate on Second Mortgage (40K): 7.5%
Intrest Rate on my car loan (26K) : 7.5%

Me and my wife together have $10000 in 401k and Roth IRA.

I make 9K per month and my wife makes 5.5K per month (Gross). Our employers are not contributing for our 401K but we can contribute if we want.

This is our situation. How should we manage our finance from here. Should we contribute for 401k? or wait till we get rid of our CC debt? our credit score is around 625, which is very poor.

Any kind of advice is greatly appreciated.

Thanks

Disney Steve's first post was excellent. You need to be organized about how you attack the debt.

It appears as though you have 12k of room on HELOC from anothe post. I would look to transfer any debt to the HELOC to keep rate low while other debts are tackled.

List the CC debts in order of highest interest rate to lowest interest rate. List balance in second column and minimum payment in third column.

Then move the 12% balance to HELOC or pay off in less than 3 months.
Then repeat with next highest interest rate
then repeat with next highest interest rate

and keep continuing to do this until debts are paid off.

I assume HELOC rates will be around 5-8%. The goal is to lower overall debt burden as quickly as possible- and lowering the rates even by 1% will help speed this up. If you have $4400 to pay off debt each month, then apply minimum payments to everything, and then send the rest to the card with highest rate (keeping in mind if highest rate was transferred to HELOC, it is no longer the highest rate).

Repeat this cycle until the only debts left are the 1st mortgage and HELOC, then go for the HELOC.

Once the only debt is HELOC and 1st mortgage, I would look to invest. Get 15% of income going to savings. I would use a 401k enough to lower MAGI, so that you can contribute to a Roth IRA.

My advice- all disposable income to debt until only debt remaining is mortgage.

When mortgages are only debt left, 15% to retirement savings, remainder to HELOC

When HELOC is paid off, I would invest the money and increase 15% savings rate to something higher.

If you transfer money to HELOC, it will make it harder to refinance. Assuming this whole process takes 2 years, I would suggest refinancing once HELOC is paid off.

[jIM_Ohio]

Pay your debts first, you earn plenty of money to invest later. Read also The Millionaire Next Door. I am 2/3 through it now and find it facinating. It talks alot about high income low net worth people, it will change your perspective of your financial health.

I agree. The advice to invest first before debts were zero is short sighted. Time value of money is misguided advice.

If it takes 2 years to pay off debt with $4400 payments, we are talking about only 2 years of compounding. In that same two years the debt is compounding in reverse.

The priority should be the debt and the time value of the compounding in reverse.

OP can make up for missed 2 years with a higher savings rate once he continues investing.

[CreditExpert]

the best is to pay your debts off first. You are still young enough to use the money to pay off your debts and then later on, once your debt free sink as much as possible into the 401k.
You will have to draw up a budget and start sticking to it, from you posts there seems to be a lot of unnessesary items that you send money on. Cut these down, cut up those credit cards and stick to the budget. It will be tough for a few months, but as soon as you have one card paid off the rest will snowball and you will be debt free before you know it.
Good luck!!!