Post # 1
Okay bees, I posted recently about budgeting tips and I appreciate the help. Since then, I’ve really had this lightbulb moment about want to be more diligent in paying off my debt rather than just routinely paying the minimum every month. I’m somewhat familar with Dave Ramsey’s snowball method, and it doesn’t seem TOO difficult but I still have no clue where to begin or what to prioritize.
I made a little breakdown of my amounts, payments and interest rates. I am using mostly round numbers just to try to keep some anonymity. I’m hoping maybe some of you can give me suggestions on where you would start? Which areas I should switch and pay the minimum and which I should “over pay” on? I typically pay up to the nearest even $100 on these payments already. (so even the payment that is $300, which is rounded already, I typically pay $400 on that).
- Credit Card – Current Balance: $5,500. No interest rate and I’m actually caught up on the current “minimum” payment this month, but it usually is about $130.
- Car Loan – $20k with 4% interest rate. Minimum payment $450, but I’ve always paid $500/month.
- Student Loan #1 – $9,000 with 5% interest rate. Minimum payment $110.
- Student Loan #2 (this is one where I have a few smaller loans all lumped into one and pay one institution) – $27,000 with 4% interest rate. Minimum payment $300.
Yes – I do have emergency savings + regular savings built up. I do put into that regularly but I have enough in there that I could maybe stop for a while to put extra towards debt payments?
No (like a hard no) – selling my car or trading it in is not an option. Yes, it has depreciated a crap ton because I bought it brand new, but at this point it is better for me to continue to make payments on it than the latter. I’m also 2 years ahead of schedule for paying it off.
Please NO judgemental comments on my total debt amounts, what I owe on what, etc. I’m only looking for helpful advice and suggestions on where to start! Opinions on how you would personally do it are welcome. I am fully aware of how crappy it is to be in this much debt hence the reason I am working so, so extremely hard to pay it down as fast as possible. It does suck but I’m doing my best.
Post # 2
kmbumbee190618 : I would focus on the credit card first, credit cards are difficult to pay off with their interest rates
Eta, saw that there is no interest rate on this card. So my comment might be moot. I think you typically want to focus on the high interest debt
Post # 3
When does the no interest period of your credit card end and what will it be at that point?
Post # 4
Sorry, no help because I don’t follow Dave Ramsey.
But if your credit card debt has no interest and your only loans are for your car and college, then I’d say that’s not too shabby!
Still, you may want to attack credit card first because I imagine a non zero rate will kick in at some point?
Post # 5
Sansa85 : Yeah, this. They KILL you with iterest.
Post # 6
Bee, I know it sucks to be in debt, but I want to start off by saying you’re actually not doing too poorly. Student loans generally aren’t considered “bad” debt, and yours are at pretty reasonable interest rates right now. You seem to know buying a new car is never a good deal and hopefully won’t make that mistake again, but you’re ahead of your payment schedule and have a not crazy interest rate on that. Your CC debt isn’t huge, and it’s at 0%! Yay! You’ve got this – with hard work you’ll knock these out in a reasonable amount of time.
OK, now some questions:
– When does interest kick in on the credit card? I’m assuming you’re in a 0% introductory phase, and the interest rate will probably jump sky high after it’s over. So I would prioritize making sure you pay it off before the interest rate kicks in
– Snowball method is good for the psychological boost you get when paying off a loan, but it’s mathematically not a good strategy. Mathematically it makes most sense to pay off the highest interest rate debt first. In your case, however, since your highest interest rate is on student loans (“good” debt) I’d focus on paying off the CC first before the introductory 0% interest ends–even though there isn’t interest now.
– In terms of how to pay off the debt, can you tell us your monthly net income & monthly budget? To pay down debt (or meet savings goals) it really does come down to amount spent vs. amount earned. So the best way we can advise you is to suggest areas where you can cut down on spending. If you don’t have a budget yet, now is the time to make one. Personally I don’t track every category closely, but rather use Personal Capital (free online service) to track our overall cash flow and try to stay within a target total budget.
– For more financially savvy advice, you might want to check out r/personal finance. I also recommend the Frugalwoods blog!
Post # 7
I would mostly follow dave ramsey principles and stop contributing (temporarily) towards savings since it sounds like you have a decent cushion. Apply that and any extra money (after doing a zero based budget) towards your smallest debt first. Once that debt is paid, snowball that payment amount + the extra amounts + the current minimum on the next payment until all debt is paid. Try to be as aggressive as possible so you can get out of debt quicker. Cut down on extras as much as possible, like eating out, getting coffee, or anything other than necessities.
Post # 8
I made the minimal payments on my car during college. It was paid off right when I graduated and the loans came in. But it doesn’t matter how fast you pay off a car loan… the interest was already set in stone when you bought it and added to the monthly payment. So that being said I would hit the credit cards first… then the school loans.
I had 26k in loans. I just picked the smallest amount with the highest interest rate to pay first. Then the smallest with the smallest rate. Then the moved that way up. I had 6 different school loans different rates but they were all under one company to manage. My final loan was the largest amount with the smallest interest.
Knock out the car loan last. I would pay the minimum while you pay the other stuff… then hit it hard when all the other debt is gone.
I was weird and bought a house, though. Was the only way I could even touch MY loans. Rent was outrageous. But after that, I paid my 26k in school loans off in 1.5 years. House has since been sold, moved in with fiance, and now we are knocking out that mortgage as fast as we can before TTC.
My way of doing things is depleting my check and living like I live pay check to pay check. Nothing left to spend on junk when you immeadiately drain the account to pay off debt and save.
Post # 9
So – I’m an avid budgeter. I use a program called You Need A Budget and I 100% swear by it. It does cost money to have the subscription for the year, but it has changed the way I view money. Using YNAB and Dave Ramsey’s method has been a lifesaver. In fact, the ONLY debt my fiance and I have is our mortgage and one car loan (we own my car – his we are paying off).
I would stop contributing to the savings account for now. It sounds like you have a decent amount saved up just in case. Pay off your smallest debt first (regardless of interest rates) and once that’s paid off, snowball it into your next debt.
One of the biggest things I learned with YNAB and Dave Ramsey is to give EVERY dollar a job. Every single cent has a purpose. The only way I’ve been able to adhere to that logic is by using YNAB.
Good luck on your journey! It’s so well worth it!
Post # 10
kmbumbee190618 : pay the minimum amount needed to have the credit card paid off before the interest free period ends (calculate this yourself – the minimum they tell you likely won’t do it). After that there are two schools of thought – prioritize by interest rate or prioritize by smallest balance to largest. For you those are one in the same! So I would do this:
1. minimum on credit card to pay it off before the interest kicks in
2. minimums on car loan and student loan #2
3. throw all available extra cash at student loan #1
Once a debt is paid off take that amount and add it to the minimums you’re paying on the next loan. That’s the “snowball” effect. As each debt gets paid off you can accelerate your pace on the next debt. Repeat until everything is all paid off. THEN put all that money into savings/investments instead!
eta: if your savings is in a good place I would definitely stop adding to it and put more money towards debt. Paying off debt at 5% is better than saving it at 2%. Your money will go further.
Post # 11
When does that 0% interest on your credit card end? Usually that’s only good for x amount of time and then they will kill you with interest.
I would 100% pay off the credit card, then car, then student loans. I only say car before student loan because the car is a depreciating asset, the student loans are not.
Post # 12
I know you’re saying it’s a hard no to sell or trade-in your car, but is the car worth more than your current loan? You said it’s already depreciated “a crap ton”. If you’re under water on your car, it is 100% NOT worth it to continue paying that loan.
Post # 13
You want to get your CC down to zero before the interest rate kicks on. So if that is going to happen before the minimum payment gets you there, start throwing your extra payments towards that and be aggressive! Most CC”s have 2-digit interest rates so that will HURT.
If it’s some magical long-term no-interest rate card, then focus on the 5% STudent Loan #1.
THe trick is to throw ALL your extra payments towards a single high-interest loan. THe feeling of success is amazing when you see a debt disappear and gives you the energy to keep going. So from a mental perspective it’s better to aggressively pay down a single loan then spread extra payments across multiple loans.
Use a budgeting tool (like YNAB – I also love it and swear by it) to add more structure to what your monthly budget actually requires and where you can cut down to increase the extra payments to your debt.
Also – any unexpected income (e.g. bonuses, promotion money, gift money) all goes to debt ALWAYS. Once debt is gone, then that money goes to fun, but until then – it’s 100% extra payment!
Post # 14
Okay, so quick reply to everyone then I’ll probably reply more in-depth to some. I guess the credit card is something I should have clarified. I’ll be specific with this – I have a Discover, plain ole discover and it’s been fantastic, super great rewards and cashback options.
I have read through my terms, the fine print everything, old statements, bills, etc you name it and cannot find anywhere where it says WHAT and WHEN the 0% interest ends. I know usually it is after a year but I have had it over a year and still.. 0% interest. I’ve had credit cards in the past so I understand that interest kills you but if anyone is familar with Discover perhaps you have insight on when the 0% APR ends? I could obviously call customer service or chat online with someone about it, but I’ve not had any interest charges show up on my bill even after my 1 year mark so I haven’t stressed too much over it.
Post # 15
sarfin914 : Yes but if she’s upside down on her car loan, she also CAN’T sell/trade in her car without taking a loss (unless she’s barely upside down). If she’s already upside down, her best move is to drive that car into the ground, well past the point of repaying the loan. She should still ‘make payments’ to herself even after the car is paid off and that money then becomes the down payment on a new car. The longer she drives this car (and makes payments to herself) the better set up she’ll be for the next one.