| Need advice on how to best pay off my debts |
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help_requested
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| Need advice on how to best pay off my debts |
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I have 60k in credit card debt, about 15k at <10% interest and the rest from 16-26% interest
I have about 10k in checking + 10k in index fund + 8k in stock, so about 28k liquid that i can pay toward these cards, tho i'd prefer to keep the 18k in investments intact rather than use them to pay the cards off
My monthly minimums are 1500/month right now total, with over 1k being interest payments. I can afford to put 2500/month to the cards and still pay for all bills and have 1k/month for food/toiletries/gasoline/etc along with up to 28k from the liquid assets.
I spoke with a credit counseling company (non-profit) that said I could use their program with 2 of my creditors that are about 16kish each and they would get my rate down to an average of about 7% and then i'd just pay around 730/month for that 32k of debt for 52 months. they said it wouldn't affect my credit at all and wouldn't be reported; that i'd simply not have access to those 6 cards anymore and could pay extra at any point etc...when i pay off cards, the creditors may or may not close the accounts
is this legit? is there any downside to doing this?
my credit was about 720 before credit card debt...now it's 580ish as i'm at my limits, etc...i want to get it back up to 700+ so don't wanna do anything that will be a negative on my score, as i know simply paying off all the cards will raise it back up again
what other options do i have?
i have a house as well...been in it 1.5 years...220k paid, 6.375% on 1st fixed 30 years and 9.5% fixed on 2nd for 30 years...i pay 250/month extra into that 2nd mortgage tho...so i have maybe 10k equity plus the home next to me sold for 14k more base than mine as same model in new home community, and i've done some improvements like crown moulding and in-ceiling speakers so i may have some equity, but not 60k worth...and not sure how much i'd qualify for anyway with lowered score
i wanna pay back the money, not get out of paying it...and i wanna not hurt my credit score
advice appreciated
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Mon Sep 24, 2007 7:19 pm |
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pf101
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I would not use the debt counselor. Way too many of those places are shady and the odds of you finding a good one are slim. Most of the people I know or who I've worked with who have used a company like that have come out on the other end worse than when they went in.
What you need to do is set up a debt payment plan.
Make a list of all of your debts (including both mortgages) and include the balance, interest rate, and minimum payment amount. For your mortgages you should use the effective rate (what you pay after the tax deduction). Then sort your list in order of highest interest rate to lowest. Make minimum payments on your lowest rate debts (including the extra you're paying to your 2nd) and put all extra money onto your highest rate debt. Once that's paid off, move on to your next debt, lather, rinse, repeat until done.
This method is the one which will save you the most money.
Regarding the $10k in your checking account, at the very minimum you should move it into a high yield savings account. But, depending on your risk tolerance, you could use some/all of it to pay down debt. That's a personal decision and it depends on things such as: how solid is your job, what is your family situation, etc. Personally I think having a bunch of cash sitting around losing money while you pay crazy interest rates is bad, but I have a high risk tolerance so I can also see where people would want to have a cash cushion of some sort as an emergency fund.
Good luck to you.
Personal Finance 101
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Mon Sep 24, 2007 8:22 pm |
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Apollo
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| Re: Need advice on how to best pay off my debts |
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I wouldn't recommend a debt counselor either while the debt payment plan suggested by pf101 is a good idea and here is one more suggestion:
I know of several individuals who used the strategy below and got out of debt faster then they imagined but it is a strategy which is associated with risk and if you're risk averse not ideal for you.
Use a short-term investment strategy with the goal of monthly cash-flow creation which you will use to pay off your monthly payments. Once again this is risky and not ideal for everone but the individuals I know have done just that.
You mentioned that you have 8k in stocks and IF you consider such an approach I would use those 8k for that purpose.
Personally I would move the 10k from your savings account to a money market account and use it as an emergency fund while I would put the 10k from your index fund towards the short-term investments in order to boost monthly cash-flow.
Once again this strategy really depends on many personal preferences and your risk tolerance. There is more then one way to repay your debt and the above one is the one that is associated with more (maybe the most) risk in comparison to the 'traditonal' ways to repay your debt but it may also be to most efficient.
The individuals that I know who used the above strategy had less liquid assets then you described but a high risk tolerance and looked for the fastest way to reapy their debt load.
Whatever approach you choose I hope that it will be successful.
It is not smart to play it safe but it is safe to play it smart.
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Mon Sep 24, 2007 9:44 pm |
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help_requested
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yeah, that sounds like a good idea; i already wrote out all the accounts/balances/interest rates/min payments etc to figure out the order of payment, but i guess i was thinking that using the credit counselor would let me pay less interest on the 32k to the 2 creditors (7% instead of 16+%), so if no downside to it, then i'd like to do that with 2 of the creditors...any advice on how to find reputable ones that work as advertised and won't hurt my credit?
i always keep my money in ing getting 4+%; only have 10k now cause just changed jobs so vacation payout+travel reimbursement+signon bonus+first few weeks paycheck...but i def agree about getting interest for my money
up until now, i had been putting $200/week into index/ing, money into 401k, and 10% into employee stock program at old company, along with 250 extra to mortgage, so i am huge on saving first...however, due to 60k less revenue than before in past 12 months, we are now in this credit card mess, so i'm trying to get out of it now even as we have gotten the revenue back now...so i'm gonna have to liquidate the savings/stock, and stop putting money into savings for the near future, which is really hard for me, but has to be done as it doesn't make sense to be paying 12+% to credit cards
just need to find the most painless way to pay off the cards so i can go back to saving and investing...whether that's simply paying off highest cards first, etc, or finding a legit counselor to get lower rates...i'll do what makes most sense financially and credit-score-wise
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Mon Sep 24, 2007 10:35 pm |
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help_requested
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| Re: Need advice on how to best pay off my debts |
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quote:
Originally posted by Apollo
I wouldn't recommend a debt counselor either while the debt payment plan suggested by pf101 is a good idea and here is one more suggestion:
I know of several individuals who used the strategy below and got out of debt faster then they imagined but it is a strategy which is associated with risk and if you're risk averse not ideal for you.
Use a short-term investment strategy with the goal of monthly cash-flow creation which you will use to pay off your monthly payments. Once again this is risky and not ideal for everone but the individuals I know have done just that.
You mentioned that you have 8k in stocks and IF you consider such an approach I would use those 8k for that purpose.
Personally I would move the 10k from your savings account to a money market account and use it as an emergency fund while I would put the 10k from your index fund towards the short-term investments in order to boost monthly cash-flow.
Once again this strategy really depends on many personal preferences and your risk tolerance. There is more then one way to repay your debt and the above one is the one that is associated with more (maybe the most) risk in comparison to the 'traditonal' ways to repay your debt but it may also be to most efficient.
The individuals that I know who used the above strategy had less liquid assets then you described but a high risk tolerance and looked for the fastest way to reapy their debt load.
Whatever approach you choose I hope that it will be successful.
what is the strategy?
i'm open to all options; my number one priority right now is to get out of credit card debt so i can go back to saving 1k+/month and buying some land for future house site and a vacation rental cabin...but i can't do any of that while paying 20% on credit cards, unfortunately, so gotta get rid of debt first
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Mon Sep 24, 2007 10:38 pm |
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help_requested
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what if i were to enroll in a masters program? i could then take out student loans and use it to pay off the cc debt, and the student loan would be at a much much lower interest rate?
basically, my goal is to find the best way to lower my interest rates without harming my credit
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Mon Sep 24, 2007 10:44 pm |
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pf101
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quote:
Originally posted by help_requested
yeah, that sounds like a good idea; i already wrote out all the accounts/balances/interest rates/min payments etc to figure out the order of payment, but i guess i was thinking that using the credit counselor would let me pay less interest on the 32k to the 2 creditors (7% instead of 16+%), so if no downside to it, then i'd like to do that with 2 of the creditors...any advice on how to find reputable ones that work as advertised and won't hurt my credit?
Unfortunately, I can't help with that. I think your best bet is to just get on a aggressive repayment schedule. Since the cash in your checking account was a windfall, I'd use it to pay down a chunk on your highest rate debt.
Another option may be to get a HELOC but depending on fees, rates, etc. that may not work and honestly, I'm not a fan of trading unsecured debt for secured debt.
You also need to really look at your lifestyle if you could put on this much debt in 12 months. That's insane. What changes have you made to your budget to help with the debt repayment?
Personal Finance 101
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Mon Sep 24, 2007 10:45 pm |
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pf101
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quote:
Originally posted by help_requested
what if i were to enroll in a masters program? i could then take out student loans and use it to pay off the cc debt, and the student loan would be at a much much lower interest rate?
basically, my goal is to find the best way to lower my interest rates without harming my credit
That's called fraud. I'd not recommend it.
Personal Finance 101
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Mon Sep 24, 2007 10:46 pm |
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help_requested
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ok, nm on the student loan thing then...i don't wanna do anything illegal
basically re: debt...
a) we were making 60k more/year before so our bills were higher...but my online marketing business went away and my wife didn't work...so there went 60k....bills higher than my paycheck lead to debt
b) i started another business to make extra money to compensate and it didn't pan out, so there was some money
i now make over 30k/year salaried than i had been and my wife is working again, so we now have 3500 after bills to spend on whatever...so 1k for gasoline/food/toiletries/car maintenance/etc and 2500 to credit cards...
we were also saving about 1300+/month between 10% to my 401k, 10% to company stock, 200/week to ing/index fund...i wanted to save first and not lose that...should always pay urself first...but that doesn't work when u are in debt and paying high % rate back...paying 1k/month in interest will get u underwater quickly
also, wedding/honeymoon/home improvements, etc took its tolls
we have now made adjustments to compensate and added to revenue, so i'm ok with the future...i'm just worried about most efficient way to pay back the debt given that we have roughly 2500/month to put toward it...that's 30k/year...plus 30k between savings/stock/checking....so could be out in 1 year if NO interest...however, interest extends that significantly, so i wanna lower the rate
also, added bonus is that our lifestyle will forceably be diff by time we pay off debt since we had to put 2500 to cards...once done with debt we can put 1500 to savings/investments, 500/month to vacation fund and 500/month to whatever else...plus i should be making another 20k+/year within the next 2 years
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Mon Sep 24, 2007 10:56 pm |
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pf101
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Honestly, IMO/experience, you're not going to get your rate lowered until you get your score up. Is your wife's score bad too? Do you have a friend/family member who would let you use their credit for a 0% BT? My mom did that for me at one point. I had $15k in credit card debt at 15% and she let me transfer it to one of her open cards and I paid it off in less than a year. Any way that could be an option?
Also, I've noticed that as you start paying off your debts they start sending you BT offers which you can use to move your high rate debt to lower rate cards. One thing you want to make sure of is to NOT close your accounts once they're paid off. That will kill your score. Leave em open.
Also, I don't know where you live, but $1k/month to those things sounds like a lot. My entire budget including rent, utilities and food doesn't even cost $1k. Do you have a detailed written budget?
Personal Finance 101
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Mon Sep 24, 2007 11:05 pm |
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help_requested
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yeah, i've got 1 card at 0% now (just got it last month!) and another at 1.9%...and another at 9.99% but the older cards are at higher rates
i guess if i just use my cash/stock/ing/index to pay off highest cards, i'll start getting 0% offers again in the mail...maybe that is the best solution...at worst i should get some cash access checks for 5% or so
so that is a good point...maybe best option is to just pay them off as i can, highest first, and wait for good offers to come in to lower the % rate
i was just hoping to convert 16% to 7% on 32k of it without affecting credit...if that was possible i'd be in really good shape
i have a detailed written budget for mortgage (1750/month), car, insurance, etc etc...that's how i know i have 3500 leftover...i'll likely put more than 2500 toward ccs each month, but just used 1k for simplicity and as worse case (it does cost me 150ish/month to drive to-from work in gas/tolls...then food/wife's gas/toiletries/any car maintenance/etc etc...)
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Mon Sep 24, 2007 11:11 pm |
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pf101
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I think you need to give up on the 16% to 7% thing. You *may* be able to do it with a debt counselor, but the odds are much more likely that it will completely mess up your credit so is it really worth it when you can just tighten your belt for a year or two and be done with it?
I assume you've done all the easy stuff to cut your budget like cancel the following: gym, internet, cable, phones. Cut back on/eliminated luxuries like smoking, drinking, eating out, vacations, new clothes, expensive toiletries, etc. Examined ways to decrease your bills like raising your insurance deductible, consolidating car, home, etc into one policy, downgrading to a cheaper car, using generic brands instead of name brands, getting creative with cooking to extend your food budget, started a garden to supplement your food budget, sold the things you no longer need, considered renting out a room in your house and so many other things that can easily be done and can free up a lot of extra cash.
Personal Finance 101
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Mon Sep 24, 2007 11:18 pm |
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California Health
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There's nothing wrong wityh taking advantage of transferring balances to lower rate cards just be careful of the transaction frees they hit you with
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Mon Sep 24, 2007 11:21 pm |
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help_requested
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no, it's not worth it if it will go on my credit report
they told me that it will not go on report; they said creditors freeze me from using cards and change rate to 7%...they can writeoff the diff in interest since using non-profit credit counseling company...so they get all the principle plus interest and tax writeoff...i get lower interest rate so i can pay it off faster
that's what was appealing to me...but u are saying u doubt it works like that...u think it will affect my credit, etc?
if it will affect it, i don't wanna do it, as i'll want over 700 credit once out of debt for making property investments, etc...so while i'm looking to lower my interest rates as much as possible, i wanna do it without any harm to credit
(example: i called amex and they lowered rate from almost 30% to 16% on 20k balance just by asking if there was anything we could do about the high rate...so will pay 300/month interest instead of 600/month and nothing bad on credit rating...)
so i want more things like that example; wanted to make sure i'd researched all options before i do anything, as i wanna apply the 28kish cash the most effective way...
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Mon Sep 24, 2007 11:24 pm |
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pf101
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quote:
Originally posted by help_requested
no, it's not worth it if it will go on my credit report
they told me that it will not go on report; they said creditors freeze me from using cards and change rate to 7%...they can writeoff the diff in interest since using non-profit credit counseling company...so they get all the principle plus interest and tax writeoff...i get lower interest rate so i can pay it off faster
that's what was appealing to me...but u are saying u doubt it works like that...u think it will affect my credit, etc?
if it will affect it, i don't wanna do it, as i'll want over 700 credit once out of debt for making property investments, etc...so while i'm looking to lower my interest rates as much as possible, i wanna do it without any harm to credit
(example: i called amex and they lowered rate from almost 30% to 16% on 20k balance just by asking if there was anything we could do about the high rate...so will pay 300/month interest instead of 600/month and nothing bad on credit rating...)
so i want more things like that example; wanted to make sure i'd researched all options before i do anything, as i wanna apply the 28kish cash the most effective way...
They say lots of things...doesn't make them true. In my experience and from what I've heard from clients and read in articles and on other forums, they put these accounts into a special status that looks worse than filing for BK. Also, many (most? all?) times the company requires that you close the account which really hurts your score. Also, if they're writing off a portion odds are good it's going to say that on your report which will look bad - and will stay there for 7.5 years after you've paid.
This doesn't even touch on the fact that many times they don't make payments on time, charge high fees and, in some cases, hold back payment for so long that your account goes to collection so the debt counseling company has a better way to negotiate. The risks are not worth it IMO.
If you only heard some of the horror stories some of my clients have been through. I have one person who was $40k in debt when they went in and $42k in debt after over a year on the program due to late fees and penalties because the company didn't make payments and all of his accounts went to collections. When he pulled out of the program his rates skyrocketed and when he finally paid them off he discovered that all of his cards had been closed, his score was in the high 400s and he was starting his credit over again from worse than scratch.
Personal Finance 101
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Mon Sep 24, 2007 11:31 pm |
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