Debt Pay Off?

[GeekAhoy]

Could use some advice. I closed out a contract that paid $3200.00. I currently have two debts sitting still.

Debt 1. Credit Card. $2500 limit, 100% used. Interest rate 17.99% Variable payment.

Debt 2. Medical Credit Card (CareCredit) $3500 limit, 77% used (remain $2695.00). Interest rate 29.99% with fixed monthly of $100.00.

Given my control of credit, my option was pay off CC which is housed by my financial institution (it started effecting my loans) and cut the card up. Or pay off the Medical credit card (that I don't need anymore as I paying for Health insurance now.)

I'm a single male, I live alone, and I don't really spend a whole lot. The credit was due to previous mistake before I got a better career. Now I'm just cleaning up the mess.



Any advice would be awesome. Thank you!

[disneysteve]

Welcome. Can you give us some more information? What is your current income? What are your monthly expenses? How much, if anything, do you have in savings?

[dczech09]

Do you have at least $1,000 set aside for emergencies? If so, then payoff that first credit card. If not, sock away $1,000 immediately and then pay the rest on the first credit card. I say this because it is the smaller balance and will give you some flexibility once it is paid off. That card is variable 17.99% and 100% utilized. If you do this, you will have only $300 left to payoff on this card, which will take you no time to take out. Once that is done, focus everything on that second card. That second card you are paying roughly 50% more in interest than you are in principal. It is also your larger balance so you will save that for last since it will take longer.

[snshijuptr]

I say pay off the Medical card because the interest is higher. Keep the remaining $500 for an Emergency Fund since you have maxed our your credit. Next month, use the $100 that you won't be spending on your medical card and transfer it directly into your e-fund at the beginning of the month. Use any leftover cash in the future to pay down the credit card. Once you have $1000 in the e-fund, redirect the $100 a month toward the other credit card. Do the transfer when you get your paycheck or you will find the "extra" $100 is spent really easily.

Good luck.

[jpg7n16]

The assumption I'm basing this advice off of is that this $3200, is a bonus-type payment. Meaning: you have it extra, you don't need it for daily living expenses, and you will either pay down debt, keep it in checking, or invest it somehow.

As long as the above is true, the best option for you is to fully pay off the Medical card and put the remaining $505 towards the credit card. For two main reasons:

1) It saves the most interest
2) It saves the most cashflow (if needed)

Then you should start putting the $100 (along with any other cash you can free up in your budget) towards paying down the credit at much higher than the minimum payment. As long as your income is reasonable, and your other debts aren't too large, you could easily knock the whole card out in 4-6 months. That would really improve your financial picture.

I say put the $505 towards the credit card rather than sit in an EF because you will have access to the $505 through your credit card anyways if needed for an emergency. May as well save on interest in the meantime.

Good luck!

[snshijuptr]

I say put the $505 towards the credit card rather than sit in an EF because you will have access to the $505 through your credit card anyways if needed for an emergency. May as well save on interest in the meantime.

I would normally agree, but many people have seen their credit limits cut right now. I would not want the OP to be caught in a bind. He said he has been having loan problems because of the maxed out card.

GeekAhoy, I really think you might want to keep some of the money just in case. You could decide to move the $100 to the other credit card instead of toward the e-fund. That is your choice of how risk-averse you are.

[GeekAhoy]

I appreciate every ones feedback! I am torn between the two. I'm on the verge of another promotion which increases my monthly income. Part of me thinks clearing the Medical Card first and put the rest into the Credit Card would suffice. Let me go a bit more in depth on my loan issues with the credit union, currently both vehicles are at 12% interest because I let my credit eat itself. I hit a financial rough spot where income was minimal and I had to skip/miss payments. Also let me credit card max out. This caused my credit score to plumet to an alltime low. In the past I was normally averaging a 7-9% interest rate on personal loans. Now not so good.

Here is a financial break down on my income/expenses. The person who said it was right, this $3200 is an extra bonus that is not tied to my normal income/expense.

These figures are based on monthly, not bi-weekly.

Income: $3176.00

Expenses (includes mortgage, vehicle loans, insurance, credit (includes the Medical/Credit Card we're discussing here), and monthly gas consumption): $2234.00

Remaining: $566.00

What remains goes to food and casual entertainment. Being a single guy, $566 is manageable but not ideal. I don't enjoy the position I'm in, however I'm willing to make drastic changes to fix it. I eat less out now and try to save what I can. This is the first month I'm starting this change. So I can't say it's helping. I just know that with the $3200 coming, if I don't use it right I'm never getting out of this hole.

If I clear the Medical card, that frees up an extra $100 that can then turn around to $200 per month on the credit card plus any additional I get.

I don't have anything in savings unfortunately. So really I have no e-fund. It's not comforting knowing if I lose my job I'm literally screwed. I don't have a back up to carry me.

[dczech09]

Ultimately, these debts should be paid off completely in less than 4 years, assuming $100 per month to each account. Snowballing starting with Credit Card 1 will allow a complete payoff of debts in 37.8 months; snowballing starting with Credit Card 2 will allow a complete payoff in 45.34 months.

Under my advice, $1000 goes to savings and the rest of the money goes to CC1. CC1 will have a balance of $300. Pay $100 each month to each account then snowball CC2 for a payoff in a total of 18.88 months.

If $505 is set aside for the EF and CC2 is paid off right away and $200 goes to CC1 per month, it would take 13.94 months to payoff all debts.

So lets assume 19 months versus 14 months, for a 5 month difference with $495 less in the EF. With no CC payments, it would not take 5 months of $200 contributions to get the EF back up to par. SO based on my analyses, the other guys are right to tell you to payoff CC2 first. Take out that medical debt first and put the rest in EF. Then focus on that first CC thereafter. If you stick with this plan, you will be debt free and have money set aside in less than 1.5 years (assuming you don't add more debt in the process).

[jpg7n16]

I would normally agree, but many people have seen their credit limits cut right now. I would not want the OP to be caught in a bind. He said he has been having loan problems because of the maxed out card.

GeekAhoy, I really think you might want to keep some of the money just in case. You could decide to move the $100 to the other credit card instead of toward the e-fund. That is your choice of how risk-averse you are.

Fair enough, I personally don't think that's a high risk. I still put it on my card in the scenario I listed. Now if this was my only cash in the world, things are different and I absolutely side with you.

I'd be trying to pay the whole thing off in 6 months or less. I doubt they'd cut my limit from $2500 so soon. And by that time, I'd have the balance lowered substantially. If the limit was like 15-25k that's a highly real possibility.

But oh well. Different opinions. I like seeing those balances as low as I can make them

[dczech09]

Furthermore, do not pay all to credit cards assuming that you free up availability on your credit card for emergencies. An emergency is NOT the time to borrow on credit, especially at 17.99%. Cash is king, set up a cash savings give yourself a buffer. Once your debt is gone, build up that EF. Do not let yourself get screwed in the event of an emergency. Have cash set aside and DO NOT use the credit card after it is paid off unless you know for sure that you can pay it off before interest applies.

[GeekAhoy]

So lets assume 19 months versus 14 months, for a 5 month difference with $495 less in the EF. With no CC payments, it would not take 5 months of $200 contributions to get the EF back up to par. SO based on my analyses, the other guys are right to tell you to payoff CC2 first. Take out that medical debt first and put the rest in EF. Then focus on that first CC thereafter. If you stick with this plan, you will be debt free and have money set aside in less than 1.5 years (assuming you don't add more debt in the process).

Would it hurt me to put $1000 in savings, pay off CC1, and then focus on CC2? I have means to lock away $1000 and never touch it. My biggest concern is that in roughly one year I NEED to refinance my two vehicles. With my CC being maxed out and my credit in shambles, I wonder if that will help bring me back in line. I can't guarantee increases over the next year, but I don't deny getting another two-three thousand in bonuses. I do design work on the side as a hobby so I get a few jobs a year through it. I always charge + taxes so that what I bring home is after I pay the taxes on my contract. So in this sense, the $3200 is after I pay taxes.

Not to mention I'm on verge of another promotion here very soon, by the end of the year. That takes me to salary (I'm currently hourly) and is said to be about $12k raise as I move to upper-management.

One place that has covered me in a few instances is my credit union and I fear my relationship is getting further out of line with a credit card maxed.

[jpg7n16]

I appreciate every ones feedback! I am torn between the two. I'm on the verge of another promotion which increases my monthly income. Part of me thinks clearing the Medical Card first and put the rest into the Credit Card would suffice. Let me go a bit more in depth on my loan issues with the credit union, currently both vehicles are at 12% interest because I let my credit eat itself. I hit a financial rough spot where income was minimal and I had to skip/miss payments. Also let me credit card max out. This caused my credit score to plumet to an alltime low. In the past I was normally averaging a 7-9% interest rate on personal loans. Now not so good.

Here is a financial break down on my income/expenses. The person who said it was right, this $3200 is an extra bonus that is not tied to my normal income/expense.

These figures are based on monthly, not bi-weekly.

Income: $3176.00

Expenses (includes mortgage, vehicle loans, insurance, credit (includes the Medical/Credit Card we're discussing here), and monthly gas consumption): $2234.00

Remaining: $566.00

What remains goes to food and casual entertainment. Being a single guy, $566 is manageable but not ideal. I don't enjoy the position I'm in, however I'm willing to make drastic changes to fix it. I eat less out now and try to save what I can. This is the first month I'm starting this change. So I can't say it's helping. I just know that with the $3200 coming, if I don't use it right I'm never getting out of this hole.

If I clear the Medical card, that frees up an extra $100 that can then turn around to $200 per month on the credit card plus any additional I get.

I don't have anything in savings unfortunately. So really I have no e-fund. It's not comforting knowing if I lose my job I'm literally screwed. I don't have a back up to carry me.

Hmmmmm well that changes some things. You need some buffer in cash against the things that happen in life. If you never have cash, and spend everything you make, then the slightest bump in the road will push you further into debt and further down the hole you're digging.

Based on your last statement, I keep the $505 in cash - and I pay off the medical debt cause you really need the cashflow.

I would also suggest getting advice about your car and housing situations. How much are those payments exactly? I'm thinking your car payments are too big, maybe even the housing. There could be a simple answer to a lot of your troubles in selling either the cars or the house, but until we get more info, it's hard to tell.

You'd ideally want your housing payments (mortgage + home ins + taxes) to be less than 28% of your income (so $890 in your case); and housing plus other debts to be under 36% - that would be all house, cars, CC's, medical, loans, etc. (in your case $1,145). And my guess is that you're way over that number.

[jpg7n16]

Would it hurt me to put $1000 in savings, pay off CC1, and then focus on CC2? I have means to lock away $1000 and never touch it. My biggest concern is that in roughly one year I NEED to refinance my two vehicles. With my CC being maxed out and my credit in shambles, I wonder if that will help bring me back in line. I can't guarantee increases over the next year, but I don't deny getting another two-three thousand in bonuses. I do design work on the side as a hobby so I get a few jobs a year through it. I always charge + taxes so that what I bring home is after I pay the taxes on my contract. So in this sense, the $3200 is after I pay taxes.

Not to mention I'm on verge of another promotion here very soon, by the end of the year. That takes me to salary (I'm currently hourly) and is said to be about $12k raise as I move to upper-management.

One place that has covered me in a few instances is my credit union and I fear my relationship is getting further out of line with a credit card maxed.

No it wouldn't hurt you. If you get out of debt it's a good thing. But it's better/faster to eliminate the highest interest rates you can. I see no problem with keeping $1k in cash - but I'd put the rest onto the highest interest rate debt.

And by "refinance" you may mean "sell." Why does a single guy need two vehicles??

[disneysteve]

My biggest concern is that in roughly one year I NEED to refinance my two vehicles.

In order for any of us to give you decent input, we need to know the whole picture. You initially asked about 2 items kind of implying they were your only debts.

Here's what I'd suggest: post your budget including all expenses including housing, food, auto, medical, insurance, debt (with balances, interest rates, monthly payments and remaining terms), etc. We can't give advice based on partial information. What is best to do with the credit card may be influenced by other factors.

I also wonder why a single guy has 2 vehicles, both of which are financed.