$120,000 in credit card debt - Need advice

Hello. I have $120,000 in unsecured debt. ($70,000 in my name, and $40,000 to my S Corp, which I'm the sole owner of).

Next week, I'm getting a check for $125,000 as part of my divorce agreement. (Got divorced in 2019)

Should I immediately take that $125,000, and pay off everything? I'm not sure if there are options I'm not thinking of.

 

Here's how it breaks down:

 

Personal

- Credit card 1 - 12.4% - $15,000

- Credit card 2 - 15.24% - $3,000 -

- SoFi personal loan - 10.81% - $27,000

- Lightstream personal loan - 8.24% - $25,000

- Total: $70,000

 

Business-

- Credit card 3 - 29.24% - $20,000

- Credit card 4 - 27.99% - $22,000

- Credit card 5 - 15.24% - $8,000

- Total: $50,000

 

Other factors

- I've never declared bankruptcy

- My credit score is decent (715)

 

Thank you in advance for any advice!

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    • Superbone
    • YNAB convert since 2008
    • Superbone
    • 3 mths ago
    • 4
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    You need to provide more information than that. First of all, those are all high rates, some horrible. Other than this $125,000 you’re getting, do you have other cash reserves? If so, how much in comparison to your monthly costs? Do you have steady income? Do you have a plan to not go back into debt? There are a lot of questions to be answered before anybody can give you suggestions.

    Like 4
    • Superbone Thanks for the reply! 

      • Only $5,000 in savings right now.
      • I'm about break even right now on monthly income (incl. current debt service) vs. monthly expenses. If I pay off everything, I'll have that $3,600 each month I was servicing the debt with.
      • Yes, I have steady income.
      • Yes, I have a plan to not go back into debt (divorced her last October 😂 )
      Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 3 mths ago
      • 2
      • Reported - view

      Slate Gray Beat With $3600 in additional free cash flow, you'll be able to put together a rather solid plan going forward. I think I'd go ahead and pay it off, and then make sure I'm really using YNAB the way it's meant to be used to ensure that going back into debt doesn't happen. Obviously divorcing the cause is helpful, but you need to make sure you have a real plan since you can't blame someone else anymore.

      That said, in the direst of emergencies, you can always reacquire consumer debt if you absolutely had to if something happened before you could build up your categories, but that should be a plan of last resort.

      Like 2
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 3 mths ago
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      Slate Gray Beat I see you also posted this to another forum I frequent. 🙂

      Like 1
    • nolesrule  Thank you for the easy-to-understand and direct advice. That all makes a lot of sense. Thanks!!!

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  • I would always get rid of the consumer debt immediately.  Especially with interest rates over 5%.  No reason to consolidate if you have the cash in hand with that check.  If you have a steady job and income from it, $5k is enough to start a small emergency fund for you while you shore up some cash and pay your bills if your not borrowing more monthly to live. Peace of mind is a wonderful thing! 

    Like 1
    • Lavender Harp Thanks for the reply! 

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  • At a minimum get rid of that 44K at almost 30%!!! That's insane!!!

    Like 1
    • Superbone
    • YNAB convert since 2008
    • Superbone
    • 3 mths ago
    • 3
    • Reported - view
    Slate Gray Beat said:
    Only $5,000 in savings right now.
    I'm about break even right now on monthly income (incl. current debt service) vs. monthly expenses. If I pay off everything, I'll have that $3,600 each month I was servicing the debt with.
    Yes, I have steady income.
    Yes, I have a plan to not go back into debt (divorced her last October 😂 )

    In that case, yes, pay it all off! Time to get rid of that albatross. Been there, done that on the divorce. That's when I started my path to financial superstardom. 😄Good luck! YNAB is the most important tool. From there, great things can happen.

    Like 3
    • MsTJ
    • YNAB has given me back my future
    • Believer_in_YNAb
    • 3 mths ago
    • 2
    • Reported - view

    Looks like you are going to be in a great place, once that check comes in.  I agree with everyone else.  Pay off a bunch of debt, if not all of it.  Those are some painful interest rates you have going now.  Then, make sure that additional free cash flow goes to build up your reserves.  For me that would be my true expenses, long term goals, and emergency funds.  After those are funded enough for you to feel comfortable, I'd go for some of the more fun categories.  In my budget that would be my vehicle and electronics replacement categories.  After that it would go toward the really fun categories, vacation, fun money (always have some, maybe increase it), holidays, birthdays.  This is how budgeting, mostly with YNAB, has gone for me.  In the five plus years I've used YNAB, mostly trying to follow their suggestions, I've gone from stressing each and every month about whether I could pay my bills to having more than I could even dream about having before budgeting, with minimal change in income.  I wish the same for you.  

    Like 2
    • Jamjo Kagre
    • Software Engineer
    • JamJo_kagre
    • 3 mths ago
    • Reported - view

    Sounds like you are stable enough with your current income, so I agree to pay off the entire debt.  On the day you become debt free, you'll have the sweetest financial feeling ever.  It's up there between getting your first drivers permit and losing your virginity.  And that money you've been using to service that debt?  Well you can think of that as a $3600/month boost to your paycheck.  Staying debt free is easy with a little work.  How about reducing the number of credit cards you are using.  Five cards between personal and business is just as crazy as the interest rates you have been paying.  Try going for one personal and one business, and shop around for better rates.  I don't know how divorce payments affect taxes, but if you think it'll impact you, you might want to set up a YNAB goal now to have a few thousand for tax time next year.

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