Seeking advice: where to focus debt paydown?
Hello all,
I've got about $44k in personal debt (car loan, LOC, 0% credit card). (The 0% credit card debt is obviously a short-term offer, and the line of credit is there to "rescue" me from high interest rates once the offers expire.)
It breaks down like this:
- $32,500 on 0% credit cards
- $8,500 car loan at 7.99% (relevant info: this car is in really rough shape)
- $2,700 LOC at 6.94%
The credit cards are more or less maxed out. The LOC maxes out at $30,000.
I need to chip away at this debt so that when the credit card offers expire, I'm not relying as heavily on new offers turning up in order to save me from massive interest payments. I currently have very little "extra" income, but I'm hoping to get a roommate in the next month or two, and then I'll be able to dedicate at least $400 a month to debt repayment. I know that's not a lot, given the large amount that I owe, but it's a start.
Anyways...here's my question: where do I focus my debt repayments?
- On the credit card balances so that when the 0% offers expire, that amount is diminished as much as possible?
- On the car loan, because that car is on it's last legs?
- On the LOC so that there's the maximum amount of room in there to shuffle money into once the credit card offers expire?
- Some combination of the above, or something else entirely?
I can't seem to settle on what would be the most advantageous.
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There really isn't enough information here. The auto loan is a fixed payment loan I presume, so we would need to know the loan payment (and remaining number of payments). What are the minimum payments on the others. How many cards are at 0% and what are the dates the promotions end?
All of these are factors.There's also the additional factor of having a dying car and the need to replace it at some point, which is only going to add additional debt (on the assumption you don't have the cash for the next car).
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nolesrule your assumption about not having cash on hand for the next car is accurate. ;)
Car loan = $302/month
2 Credit cards have a minimum payment per month in order to keep the 0% offer active. The offers come due around September of this year. I'm paying $139 + $212 (but that amount will go down...I think) for the minimum payments on the CCs. -
ddreger you have 2.5 years left on that car loan.
Is there a minimum payment on the LOC?
Do you get hit with back interest if you can't pay off the 0% in time?
My suggestion would be put the money against the LOC and continue with the minimums on the 0% cards. That should get you pretty close to being able to transfer the vast majority of the remaining balance on the 0% cards before you get hit with regular CC interest rates. I don't think you'll be able to get the combined total below $30k unless you can find more than $400/month. After the transfer I would switch to the car loan.
Your best option would be if you could find some more 0% rates because the interest on those credit card balances even at 6.94% on the LOC is gonna be painful. -
nolesrule
There is no minimum payment on the LOC, apart from paying interest on the current balance every month.
I don't get hit with back interest, but the regular CC interest rate kicks in at the end of the 0% time. Up to now, my strategy has been to shuffle money around to a new 0% offer or dump it into the LOC to take advantage of the lower interest rate, but that's not a solid long-term strategy.
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If it were me. I would cut up all credit cards then follow Dave Ramsey’s approach and save for 1,000 emergency fund so when the car breaks down you have money to fix it. Then I would go after the LOC until it’s paid off then snowball that monthly payment along with any other cash you can get towards your car to pay it off. Then snowball the car loan onto the credit cards. I am currently in a lot of debt myself and it has worked so far for us. We picked up a side hustle by door dashing it brings in about 300 plus a week or so on average in my area
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Ynaber27 ddreger Yep, this^. If the credit cards post-promo rate are significantly (like +10% over the LOC) then maybe move it to the LOC when the promo period is over. But it sounds like you're consistently playing a balance transfer game, which I have done many times, but we cannot win if still accruing new debt.
If you haven't already gone through the YNAB Debt Bootcamp, I just completed it and it really helped me answer a lot of these questions for myself. It's technically over but you should still be able to sign up and watch all the videos, and also attend the live sessions when the next one comes around. It really helps drive home the need to break the debt cycle by funding true expenses (like those car repairs) to avoid new debt. It will feel like it's taking longer than you want, but will help you maintain steady progress.
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Ynaber27 I don't use those credit cards, except to take advantage of 0% offers. The CC I use regularly is paid off in full, monthly.
Unfortunately, things like door dash aren't an option in my rather rural area. I've got the potential to earn income by having a room mate, but that will have to wait a month or two due to some commitments I made.
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Ynaber27 Unfortunately, when my car breaks down, it will need an engine replacement and new catalytic converters...that's about $5k. So my thought is to drive it until that happens, sell the tires, and buy a "new" car.
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If you’re not adding debt to the credit cards with 0% APRs, I wouldn’t focus your efforts there, as long as you’re mindful of when those offers expire. This scenario might lend itself well to the debt snowball method, where you prioritize the smallest balance first while making minimum monthly payments on your other balances and work toward the largest balance. Depending on how your credit card balances break down, it looks like the LOC would be your smallest balance, and like you said, focusing on that would give you room to move things around when the 0% APR offers expire. Consider plugging your information into a debt snowball calculator to see how that will play out.
