| Need advice on how to best pay off my debts |
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help_requested
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they don't write off any of the principal...just the lowered % interest...i still pay all principal + 7% interest...and they keep all accounts open, so my balance-limit ratio goes down each month
however, the horror stories are why i'm worried...i was hoping there was a fool-proof way to tell that a company is legit in their claims instead of just hoping that i picked a good one
the company contacted me from a lowermybills.com inquiry, which is an experian subsidiary, so i guess i was hoping they'd only use legit companies that tell the truth
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Mon Sep 24, 2007 11:39 pm |
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pf101
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quote:
Originally posted by help_requested
they don't write off any of the principal...just the lowered % interest...i still pay all principal + 7% interest...and they keep all accounts open, so my balance-limit ratio goes down each month
This is what they say...doesn't mean that's what they do.
Personal Finance 101
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Mon Sep 24, 2007 11:42 pm |
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help_requested
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yeah, that's my concern
if they could be wrong/lying about any of the following, then i'd rather not do it at all
a) it'll go on credit report
b) they could miss a payment, be late with a payment
c) it closes the 6 card accounts
so if i can't be certain that it won't hurt me, it's not worth it; if i could be, then i'd love to convert 32k at 16% to 32k at 7% (obv, if no harm)
guess my answer is that i can't, so i'll just put my money toward the highest cards (after calling each company to inquire about lowering rate) and wait for the low % transfer options to help lower my interest...couple that with some gmat tutoring in the evening for extra revenue and spending less than 1k on food/gas/toiletries/maintenance/etc and maybe we can be out in about a year
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Mon Sep 24, 2007 11:49 pm |
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rockhound
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I don't believe there is a painless way out of this. You will need to make some difficult decisions to avoid being in debt the rest of your life. You may need to consider downsizing everything (sell a car, get a smaller house), because with so much debt, you clearly have an unsustainable lifestyle.
My suggestion would be to use your $28,000 to pay off credit card debt. These investments are probably making anywhere from 5-12%, while your debt is 10-26%. Don't rob your 401k plan, though. Use the $28k to pay off the highest-interest credit cards; completely pay off the cards and then, seriously, freeze them in a block of ice in the freezer to avoid using them ever again. I prefer cancelling a card, but others have said that cancelling a card can negatively affect your credit score, and I suppose that could negatively impact the existing interest rates on your remaining credit cards.
At least then you'll have cut your debt in half, and hopefully reduced the number of cards to pay to. Continue paying as before, but now find more "extras" in your life to cut out: no more dinners out; no driving except to work and back; if you have an extra car, sell it; sell household items on e-bay; cancel cable, XM radio, subscriptions; no more vacations. These are all sources of money that must go to paying off the remaining debt. Once you get the credit card debt down to something manageable, say $10,000, then you can start shifting some of your newfound savings back into an emergency fund, renewed 401k contributions, or external investments.
One last bit of advice, since you probably realize that this debt is destroying your and your family's future, now you can focus on something positive, like how much progress you'll be making toward eliminating the debt and then saving for the future.
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Tue Sep 25, 2007 2:49 am |
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Apollo
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| Re: Need advice on how to best pay off my debts |
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To answer your question on how the individuals got rid of their debt (I know five people who did it and they were happy to choose this path, two were sophisticated investors and the other three opted to get some help but they said it was worth paying the fee. Once again it is risky but in my opinion, the smart way to handle any debt crisis if you have the assets available).
Here is a specific example of how one of those five got rid of his debt:
He had 24k in debt, 5k in mutual funds and 2k in savings. His net income a month was $2,200 and all his expenses were $1,400 and he was able to cut it to $1,200 which left him with $1,000 a month to repay his debt.
His initial plan was to take the 7k he had and pay-down his debt which would have left him with 17k in debt but then decided to do the following:
1. He took the 5k form his mutual fund and the 2k from his savings account and put it into one brokerage account.
2. He started aggressive short-term investments (yes, it included derivative trading which is were the risk comes in and not suitable for all investors and he had help with this).
3. He averaged between $600-$800 a month and used 75% of that to pay his debt together with the $1,000 he had available from his pay-check and left the remaining money in his brokerage account which after six to nine months drastically improved his monthly income form investments.
4. He paid off his debt in 18 months and after he was debt-free had 10k in his investments.
Most people will say this is way too risky and insane. It worked for the people I know and it may not be the best strategy in your situation. That is something that only you can decide. The other four people that I know who decided to take this approach had a similar ourcome (dependent on debt, income, savings,etc.).
Any so called 'financial advisor' will tell you to use the 28k to pay your debt which would leave you with 32k in debt. Yes, it makes sense but you would have 0 in savings/investments and have to restart. Some people like to do that, that's fine. Others want to use that money and engage in an aggressive short-term investment stratgey and others take another approach.
Personally, I would not use the 28k to lower your debt but use it for investments. You may get out of debt in the same time as you would (if not faster) then if you use the 28k to pay-down the debt and then your $2,500 for monthly payments but once your debt-free you would still have the 28k (probably more) in your investment account if you choose to invest your way out of it rather then pay your way out of it.
You mentioned that you pay yourself first. That is excellent and a very important aspect of financial success and I would not give up on that.
To free up cash temporarily I would suspend the 10% company stock purchases (if possible) and lower 401k contributions to the minimum amount required to qualify for company contributions (once you're out of debt you can restart the company stock purchases and up 401k contributions).
Maybe you want to use a combination of different approaches, i.e. use only 8k for investment purposes and 20k to pay-down debt or another combination.
Once again, it is risky and the majority of people would not recommend it but the people I know who did it were more then happy.
It all depends on your preferences. This is just one suggestion.
Hope this helps.
It is not smart to play it safe but it is safe to play it smart.
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Tue Sep 25, 2007 10:33 am |
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