What is the best way to tackle my debt?

[omgwedead]

So I finally have a good stable income where i can pay all my bills and still save some money, but in the process of getting here I accumulated some debt and would like to hear some opinions on best way to tackle it.

I had some credit issues in my late teens, but after getting my bachelors and struggling for a bit i have managed to find a steady source of income (1 year now) and got my score back up to 723/732/684 according to TransUnion/Experian/Equifax.

I have about $12,000 in credit card debt (split among 4 cards)

I also have about $65,000 in student loans

My income is $4,800 a month after taxes and 401k withdrawal

After paying for necessities, bills, and debt minimums I end up with about $1500 left which i split between paying above minimum on debts and putting aside for saving (which i just started doing last month)

Now here is what i need advice on. When i got my loans my credit was not great and my loans have a high interest, the highest being 10.6% and the lowest being 4%. Now that my score is better...

1) should i try to get an $80,000 loan with a decent interest rate and pay all of my debt?
2) is this what people refer to as consolidating or is that something else?
3) will doing this have a negative impact on my credit score?
4) should i even consider investing at this stage or wait till my debts are paid?

Thanks for taking the time to read and advice.


After thought:
It is ridiculous that late payments on a $600 balance when you are 18 can follow you for 7 years. I was broke and stupid back then.

[Petunia 100]

Unsecured loans usually have either short repayment terms or high interest rates. It's going to be difficult to get an unsecured 80k loan with favorable terms. You're probably going to be better off leaving the student loans as student loans and the credit card debt as credit card debt.

Student loans can be refinanced one time, can't they? Have you looked into that?

For the credit card debt, look for 0% no balance transfer fee offers. Check out this blog post for credit cards which are offering those terms right now:

http://www.magnifymoney.com/blog/balance-transfer/no-fee-balance-transfer-credit-card1322859387

Do you have a written budget? That is a great place to start. Include retirement savings, short-term savings, and debt repayment in your budget. Be careful with your money and pay down the debt as quickly as you can.

ETA: In my opinion, it is a mistake to completely put off retirement savings. You should be contributing at least enough to get any employer match. How much, percentagewise, are you contributing now?

[omgwedead]

I remember trying to refinance with Sallie Mae a while back and they told me I couldn't, and offered me 0.25% lower rate if i signed up for auto pay. I will look into it again with sallie mae and other lenders.

For retirement I have a 401k that takes 6% of my paycheck before taxes. My job matches 0.33 cents on the dollar up to 6% so i figure i would deposit the max that they would match. When i mentioned putting money aside for savings I was referring to a savings account I opened with Ally bank to have as an emergency fund.

I had not thought about 0% no balance transfer cards. I will look into that.

As for budgeting I have a google spreadsheet i use to calculate and track my spendings and savings but was not including 401k or debt balance on it which i will add now.


Thanks for the feedback

[snafu]

It's smart to 1st start building an Emergency Fund, aiming for $ 1,000. to start. It can take care of some nasty challenges life throws at the worst possible times. Borrowing more money to pay off old debt is not smart. Worse yet, it opens the door to run up more vicious debt.

I presume you'll read the terms and conditions of 0% transfers carefully. Some charge a percentage for the transfer increasing the sum owed, most charge a very high interest rate if you haven't paid the sum in the 0% time frame. You will need to work out the sum to be paid each month to ensure you've paid in full, or be ready to transfer balance to another 0% offer.

Another debt method often referred to as 'snowball,' has you focussed on paying the minimum payment on each but the smallest balance CC. Throw every dollar you can squeeze to that smallest balance as fast as you can to clear to zero. Then move to the next lowest balance and repeat, repeat, repeat. In my view, while working to clear $ 12K CC debt, you're best to adopt a budget and new way of thinking. Examine and identify each expenditure as a 'B]'need'[/B] or a 'want.' Rent, utilities, car loan/ maintenance, insurance, groceries are needs. Give yourself an 'allowance' for gas and entertainment. Once those sums are gone, so is spending in those categories until your next pay.

One of the easiest savings is controlling restaurant/fast food/pubs expenditures. It's easily 2.5 times less expensive and far healthier to eat/drink/entertain at home. Plan driving to combine errands and seek shortest routes. Review insurance to have the coverage you need for the best price available in your area.

[omgwedead]

It's smart to 1st start building an Emergency Fund, aiming for $ 1,000. to start. It can take care of some nasty challenges life throws at the worst possible times. Borrowing more money to pay off old debt is not smart. Worse yet, it opens the door to run up more vicious debt.

I was thinking of setting my goal as $5000 by the end of the year, but perhaps I'm being too ambitious.

And is it always a bad idea to refinance? i'm mostly concerned with the my private loans which have a rather high interest rate. My federal ones range from 3.0-6.8%

Student Loan				Rate		Original Amt	Balance		Monthly due
Sallie Mae Smart Option Student Loan 	10.13%		$5,000.00	$4,982.81	$109.86
Sallie Mae Smart Option Student Loan 	9.63%		$20,000.00	$20,551.01	$312.13
* Sallie Mae Parent PLUS Loan 		8.50%		$4,500.00	$5,763.16	$80.17
* Sallie Mae Direct Parent PLUS 	7.90%		$4,500.00	$4,796.86	$62.75

* Loans that my parent got for my education but i pay.

[Eagle]

So I finally have a good stable income where i can pay all my bills and still save some money, but in the process of getting here I accumulated some debt and would like to hear some opinions on best way to tackle it.

I had some credit issues in my late teens, but after getting my bachelors and struggling for a bit i have managed to find a steady source of income (1 year now) and got my score back up to 723/732/684 according to TransUnion/Experian/Equifax.

I have about $12,000 in credit card debt (split among 4 cards)

I also have about $65,000 in student loans

My income is $4,800 a month after taxes and 401k withdrawal

After paying for necessities, bills, and debt minimums I end up with about $1500 left which i split between paying above minimum on debts and putting aside for saving (which i just started doing last month)

Now here is what i need advice on. When i got my loans my credit was not great and my loans have a high interest, the highest being 10.6% and the lowest being 4%. Now that my score is better...

1) should i try to get an $80,000 loan with a decent interest rate and pay all of my debt?
2) is this what people refer to as consolidating or is that something else?
3) will doing this have a negative impact on my credit score?
4) should i even consider investing at this stage or wait till my debts are paid?

Thanks for taking the time to read and advice.


After thought:
It is ridiculous that late payments on a $600 balance when you are 18 can follow you for 7 years. I was broke and stupid back then.

I'd do the following after saving up $1000 in your emergency fund...

1. Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc… (Note: You probably need to exclude your mortgage if you have one from the list until you have the other debts paid off)

2. Next to each one write down the total balance owed.

3. Re-order these from smallest to largest debts (use Excel to make this simpler.)

4. Pay the minimum payment on all of the debts – except the smallest one.

5. Put every extra dollar you can find towards paying off that smallest debt.

6. Celebrate like crazy when you get that first debt paid off.

7. Take the amount you were paying towards the first debt and put towards the next smallest debt. Do this until this next one is paid off.

8. Celebrate again!

9. Continue this process until each one is paid off.

[Jluke]

I was thinking of setting my goal as $5000 by the end of the year, but perhaps I'm being too ambitious.

And is it always a bad idea to refinance? i'm mostly concerned with the my private loans which have a rather high interest rate. My federal ones range from 3.0-6.8%

Student Loan				Rate		Original Amt	Balance		Monthly due
Sallie Mae Smart Option Student Loan 	10.13%		$5,000.00	$4,982.81	$109.86
Sallie Mae Smart Option Student Loan 	9.63%		$20,000.00	$20,551.01	$312.13
* Sallie Mae Parent PLUS Loan 		8.50%		$4,500.00	$5,763.16	$80.17
* Sallie Mae Direct Parent PLUS 	7.90%		$4,500.00	$4,796.86	$62.75

* Loans that my parent got for my education but i pay.

Looking at the table, the 10.13% (original 5k loan) seems to stand out as the one to pay off first (interest rate, monthly payment, achievable WIN). You said you have 1500 each month left over. You could pay that balance off in about 4-6 months depending.

[doingitallwrong]

1) should i try to get an $80,000 loan with a decent interest rate and pay all of my debt?

If you can get one, with a substantially lower interest rate than your lowest debt, then go for it. I'm going to guess the odds of such a thing are pretty low, unless you're looking at a home equity line, and most would say you should never use home equity to pay other debts.

2) is this what people refer to as consolidating or is that something else?

Yes, that's consolidating. Basically you take multiple loans and consolidate them into one loan.

3) will doing this have a negative impact on my credit score?

It depends on how they look at the loan (and what type of loan you get). Your total debt won't change, but it might affect your credit utilization percentage. (This cam be an issue with 0% balance transfer offers, too, if you're not already close to the limit on your other cards. Your overall utilization will be lower, but they do look at individual card utilization, too.)

4) should i even consider investing at this stage or wait till my debts are paid?

Keep your 401(k) contribution going and set up your small EF ($1,000 -- although honestly for me, most of those small emergencies have been closer to $1,500). Then focus on your debt, at least until you get to the 4% interest rates. There's no sense investing money that makes 5-7% if you're paying 8-10% interest somewhere else.

People have mentioned snowballing your debt -- paying everything you can toward the lowest balance until it's paid off, then tackling the next-lowest balance, etc. I tend to prefer the "avalanche" method of paying off the highest interest rate first, because it generally saves more money in the long run. (With the snowball you often see meaningful results sooner -- you pay off that smallest debt -- so if you need that kind of motivation, do it that way. I keep track of how much interest I'm paying every month, so my motivation comes from seeing that amount decrease. Of course for your student loans, the highest interest rate is just about the lowest balance, so you can tackle that on and then decide whether to snowball or avalanche with the next one!)

There's a nice calculator at www.whatsthecost.com that will give you the results of doing it both ways, so you can see how much of a difference it will make both in time (overall and for each card) and interest paid.

[daledegagne]

1) should i try to get an $80,000 loan with a decent interest rate and pay all of my debt?
2) is this what people refer to as consolidating or is that something else?
3) will doing this have a negative impact on my credit score?
4) should i even consider investing at this stage or wait till my debts are paid?

Thanks for taking the time to read and advice.

1. Lower interest rate will help you assuming you don't have a credit habit to start. The danger in consolidating credit is that you simply go out and get more and then you really pickle yourself.

2. Yes, this is consolidation. To see if it's worth it - Google "Debt Consolidation Calculator - Wells Fargo has a good one.

3. No.

4. This is partially personal choice, and partially about efficiency. Make your personal choice while understanding the efficiency argument.

You can compare debts to investing like this:

Interest Rate on Debt x {1-tax rate if applicable] vs. ROI x [1-tax rate if applicable]

Choose the highest number.

Example: Student loan, 20% tax rate, 10% interest vs. Investing mid risk portfolio expected return of 8%, held in 401K

For the student loan, you receive a tax credit. B/C the investment is in a 401K the tax rate is negligent due to inflation over the years. So:

10% x [1-20%]vs. 8% x [1-0%] = 8% vs. 8% - so all things being equal, these two choices are the same -

However: A debt is a guarantee of 8% savings...where investments are not guaranteed. That guarantee is usually worth about 2-3%.

My personal Priorities

Like I said, make a life decision while understanding the numbers. For me, that means that being debt free is worth a whole lot more to me than being completely efficient, so I paid off everything except my mortgages (I own rental properties). The only investing you might want to consider is your 401K IFyour employer is doing a 50% or greater match. Other than that I would pay off all debts. If you really go ham on it, you could be debt free in 5 years or less.

Also - if you don't get a consolidation loan, or if you want a little more understanding of my story and how I paid off my debts, then google "Dale Degagne Get out of Debt" and it will bring you to a page where you can get my ebook (free of course).

Sorry - I would have provided links but I'm new to these forums....

[omgwedead]

Thank you all for your time and advice. I will evaluate all of the different opinions and find what best suits me.

Maybe i'll post an update down the road as I hit significant milestones.


Regards,
A.G.