Seeking advice: where to focus debt paydown?
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.
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).
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
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.