debt strategy help

Hi! I've been a YNABer for years, love it so much, it really has changed my relationship with money... however I am no closer to being debt free than I was when I started and am now actually the deepest in debt I've ever been. 

The majority of my debt is on credit cards. I'm a self-employed single mom and for a lot of years the cards supplemented when I just did not have the income for things from groceries to car repairs. I paid last year's taxes on my card (already doing a payment plan with the IRS so couldn't do another and just didn't have the cash). Last year especially, I made some investments that seemed really smart at the time — "I'll be able to pay this off in a month!" — and instead effed myself. 

Anyway, I'm fired up to get this sorted out as my credit card debt has ballooned to $27,000 spread across 6 cards 😣 😳  I'm also upside down in my car loan — I owe $8700 and it's only worth $6500. It's also starting to have some issues and has cost me a couple thousand in repairs over the last 6 months. 

I have been living within my budget for awhile. In fact, up until the large tax & business expense payments I hadn't touched the cards for over a year. My business is doing more consistenly well now and I've prioritized saving so that I have a baby emergency fund and a deferred income fund for the slower months, as they do come quite predictably. I would like to have a few thousand more tucked away before I can start throwing everything at my debt, which is discouraging, as it's taking foooooorrrrreeeeeevvvvvvver. 

So my question is this: How do I go about this? I know I have to take it bit by bit, and I understand the snowball approach. But should I try to consolidate my debt and then pay it down? Is there something I can do about the car situation (I am wondering if selling the car now before the gap widens even further is a good idea)??

I also am looking for some encouragement, because this feels insurmountable and I feel so ashamed to even be in this position. When I look at how much I spend a month on debt and think of where I'd be financially if I'd never gotten myself in this position, I want to punch my younger self in the face. 

Thank you!   

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  • Hi Sister Numsy !

    First step: Deep breaths! You will get there, it will happen! :)

    Younger me unknowingly had a full ride to college, so all my student loan debt is officially unnecessary and voluntary - how's that for a reason to kick my younger self? However, I've learned that violence towards our younger selves would just leave present day us with another scar to deal with.

    Second step: Have you made a debt plan? You want to buffer your True Expenses so you can stay away from the issues that led to the current predicament to begin with. This may take time, but it's worth it. Think about it this way - would younger you have ever made such a plan? 

    This plan can include options for your car. What's your interest rate? Is it worth it to try refinancing? You just had it repaired, so should it last another 3-5 years? As for the credit cards, what are the interest rates on those? If you consolidate, could you get a lower rate? Some cards offer promotional rates for balance transfers, could you work one of those into your debt plan and pay it off in a certain amount of time?

    Third step: Remind yourself of Step 1 and follow Step 2. If you haven't already, think about starting a Journal (there's a Journal section in the forum) just to keep track of where you are, where you want to be and the steps you're taking to get there - and you Will get there. :)

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    • Faness Thank you! 

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  • Hi Sister Numsy ,

    You are not alone.

    Back in October 2017 The wife and I found ourselves with $50k in debt spread across 6 cards and the biggest one was 17K @ 29.99% interest! we could barely afford the minimum payments. Living cheque to cheque on overdraft each week.

    Enough was enough so I built a debt profile, (spreadsheet) and laid out all the debt we had. I put in a description of each card, the interest rate, the amount I owed, and the limit for each card. Now I could clearly see which order to pay down the cards.

    Next step, we stopped buying crap we didn't really need, it is amazing how frugal we can be when we put our minds to it. No more Starbucks, McDonalds, No more make-up, Video games, etc. We had to ask ourselves, is it worth loosing our house vs buying this item? We limited ourselves to the basic needs.

    We stopped using our credit cards unless we put the money on the card first and it was for something we needed. At the same time we began tracking every expense we bought on the spreadsheet, and categorizing it. Next I created a bi-weekly cash flow for-casting spreadsheet (same sheet, but new tab) and put categories in the rows, and the date for each pay cycle in the columns. Each pay cycle has a column for planned and actual. For the actual columns I used "SUMIFS" formulas to calculate the amounts for each category depending on the dates of the transactions. Needless to say it sounds complicated, however if you are ok with excel it is pretty easy to build. This was before I started using YNAB.

    I am still getting used to budgeting with YNAB, as it does not let me forcast as good as my spreadsheet without giving me a bunch of red to stare at until i can get my age of money increased past 30 days. So do not worry about your age of money as much as paying down the debt on your cards. While YNAB stresses me out when I see my age of money, I am glad to report that I will have that $17k card paid off by mid march, and then I can roll the payments onto the next card. Work hard, if you need to sell some stuff you don't need, then get rid of it.

    Hope this shows you that you are not alone and that you can do it if you put your mind to it!

    Like 3
    • Klemmdog Thank you!!

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  • In another thread someone suggested https://undebt.it/ I checked it out, it allows you to enter all you debt and play with the different repayment strategies and see which one works best for you. It is free for the basic version, although there is a fancy version for $12 a year. 

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      • Primm
      • Sky_Blue_Drum
      • 2 yrs ago
      • 2
      • Reported - view

      Ruff16965 (05bd62cee897) I paid $8 with the code DEBTFREE18 as per the developer's tweet from January, it still works apparently.

      I'm a huge fan. I can see my progress in any one of several different ways, which keeps my inner geek happy and motivated!

      Like 2
    • Ruff16965 (05bd62cee897) Awesome, I'll check it out! 

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  • I think you're better off ditching the snowball approach in favor of the avalanche approach--tackling your debt with the highest interest. It takes longer to get the wins, but you're better off financially because you're saving money on interest rates. You've done a great job living within your means, so even though it takes longer to celebrate the results, you don't seem like the type of person who would give up. Seconding everyone else here... You can do this. 

    Also, if you haven't already, call your credit card companies and ask them to lower your interest rates!

    Like 2
    • Coral Jackal Can you tell me what you mean by the avalanche approach?? I thought that starting with the highest interest was how you snowballed... which is maybe why a snowball feels like an avalanche 😬

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    • Sister Numsy 

      They are pretty similar so it’s easy to get confused! snowballing is when you start with the lowest balance so once you’ve finished paying off the smallest balance you roll the payments into the next balance. It’s designed to make you feel better because you see the “wins” sooner than you do by starting with highest interest. But when you snowball, you’re allowing debts with higher interest rates to accumulate. One is good for the feels the other is financially smarter. 

      Both start with the premise that you concentrate on one balance at a time and pay only the minimum required on the others. 

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  • Thank you everyone for the support and suggestions! I've taken some steps since I posted and I'm feeling much more on top of the situation. I got a personal loan with a lower fixed interest than half of my cards and a 29 mo term, and used it to pay off my car and half of my credit card debt (so I'm down to 3 cards with the lowest or no interest). I realize that I didn't reduce my debt, just shuffled it around, but I will save a ton in interest, and with the 3 year term, I'm guaranteed to have more than 3/4 my debt gone in 3 years. Also, I managed to slightly reduce my overall monthly debt payments with this new arrangement. 

    I paid off my car but plan to keep it until the wheels fall off. I figure this way, if it does become too financially burdensome, at least now I can sell it with title in hand. 

    My determination to get out of debt has never been this strong. I'm going to continue saving as much as I can so that I have a big, fat buffer and my intention is to not acquire any new debt (until the day I can buy a house and need a mortgage).

    Like 5
    • Sister Numsy YEEEEEEESSSSS! You can do it!

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    • Sister Numsy This is wonderful!! Shuffling things around doesn't pay off debt, but it makes paying off debt a more attainable goal! And it sounds like you have everything in place with a good fall back plan if need be - Great job!! :)

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      • Scott
      • scott
      • 2 yrs ago
      • Reported - view

      Sister Numsy fantastic! Doesn't it feel great to get organized and simplify? That is one of the most rewarding short term benefits of using YNAB -- even if I won't be debt free for the much longer term. 

      Great work!

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  • I would suggest to read over your car loan documentation & assess the situation fully.

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