U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Economics > Personal Finance
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
 
Old 10-04-2018, 02:48 PM
 
Location: Minneapolis
3 posts, read 1,030 times
Reputation: 10

Advertisements

Question for some financial savy people -
I am a 29 year old trying to improve financially, looking to land a consolidation loan for a max of about $25,000 worth of credit card debt, currently with an average APY of 18.9%.
Current Min Payments: $628/mo Current Interest Charges: $410/mo

- Because I have utilized 76% of my credit my score is low (otherwise- regular payments, never defaulted)
- I make $45k/yr before taxes (salaried) with extra income that no one will count.
- I own my car but due to a bad car accident a year ago I had to "downgrade" to a $3500 Chevy w/ tons of mileage so no one will use it as collateral.
- I have no debt besides the CC. (Being anti student loans is what started the CC's)
- My FICO is 685, Transunion 538, not high enough for decent rates
- I have a minimal amount of emergency savings, and am not using the CCs at all.

My question is:
Do I take investment + savings and pay a chunk of debt off to increase the chances of getting a better consolidation offer? Or do I just keep paying the astronomical interest.

The Credit Score predictors on Capitol One and Credit Karma indicate that I could get a 30+ point jump on my credit score by paying off $700 of debt. (making it 728/568)
I have $700+ in acorns stock trading account and extra savings that I would feel comfortable parting with, but I've been told by my family that I should NEVER take money out of investment, rather save up separately. (PS, I do have a healthy 401k so I'm not totally investment poor)

My goal is to get my total debt to drop through extra payments, however my current payment toward the principle is so minuscule it will take 10+ yrs even w/ debt snowball strategy.

I'm basically just looking for a way to jump start the process beyond adding a side hustle (I already have 3 and suffered incredible burnout last year working so hard, dropping $8000 in 18 months). Paying that much interest really bothers me!

So give me some feedback, do I keep saving and paying slow and steady or is it worth the risk to clean out my little investments and savings?

Thanks in advance!
Reply With Quote Quick reply to this message

 
Old 10-04-2018, 04:04 PM
 
913 posts, read 291,047 times
Reputation: 1569
I don't think it's a good idea to invest outside of retirement accounts while you are in debt. I would sell and close the Acorns account and pay off some debt. I would also take money out of savings for this (but leave a decent emergency fund - at least $500, but $1000 might be a better idea).
Reply With Quote Quick reply to this message
 
Old 10-04-2018, 05:33 PM
 
Location: Florida
4,309 posts, read 3,644,056 times
Reputation: 4008
It sounds like you have a good handle on your problem so going forward I am assuming you will be financially responsible.

Thus I would put what every you can toward the credit card debt. This would include your investments and emergency fund if you do not think you will need it in the next few months. The reason is you can put the emergency on the cc.

It may take a while for your credit score to react to the paydown.


Look on line as their are several companies that loan money. You might be able to get a small loan at a lower rate now and maybe another when you credit improves.


Check your 401k as you maybe able to get your loan from it. If you can I would try and pay it (401k loan) off as soon as you can. The 401k loan might be my first choice.


Good luck
Reply With Quote Quick reply to this message
 
Old 10-19-2018, 02:24 PM
 
Location: Minneapolis
3 posts, read 1,030 times
Reputation: 10
Default Thank you

Thanks so much for your advice. I had a feeling this was the preferred method, I'm interested in the 401k loan option. It hadn't occurred to me.
Reply With Quote Quick reply to this message
 
Old 10-20-2018, 07:51 PM
 
Location: Too Far from Florida!
149 posts, read 317,627 times
Reputation: 198
I would recommend to read The total money makeover by Dave Ramsey
Follow his YouTube channel , his info is amazing
Reply With Quote Quick reply to this message
 
Old 10-20-2018, 08:36 PM
 
20,537 posts, read 13,568,197 times
Reputation: 14191
Quote:
Originally Posted by palmtreeprincess View Post
Question for some financial savy people -
I am a 29 year old trying to improve financially, looking to land a consolidation loan for a max of about $25,000 worth of credit card debt, currently with an average APY of 18.9%.
Current Min Payments: $628/mo Current Interest Charges: $410/mo

- Because I have utilized 76% of my credit my score is low (otherwise- regular payments, never defaulted)
- I make $45k/yr before taxes (salaried) with extra income that no one will count.
- I own my car but due to a bad car accident a year ago I had to "downgrade" to a $3500 Chevy w/ tons of mileage so no one will use it as collateral.
- I have no debt besides the CC. (Being anti student loans is what started the CC's)
- My FICO is 685, Transunion 538, not high enough for decent rates
- I have a minimal amount of emergency savings, and am not using the CCs at all.

My question is:
Do I take investment + savings and pay a chunk of debt off to increase the chances of getting a better consolidation offer? Or do I just keep paying the astronomical interest.

The Credit Score predictors on Capitol One and Credit Karma indicate that I could get a 30+ point jump on my credit score by paying off $700 of debt. (making it 728/568)
I have $700+ in acorns stock trading account and extra savings that I would feel comfortable parting with, but I've been told by my family that I should NEVER take money out of investment, rather save up separately. (PS, I do have a healthy 401k so I'm not totally investment poor)

My goal is to get my total debt to drop through extra payments, however my current payment toward the principle is so minuscule it will take 10+ yrs even w/ debt snowball strategy.

I'm basically just looking for a way to jump start the process beyond adding a side hustle (I already have 3 and suffered incredible burnout last year working so hard, dropping $8000 in 18 months). Paying that much interest really bothers me!

So give me some feedback, do I keep saving and paying slow and steady or is it worth the risk to clean out my little investments and savings?

Thanks in advance!


By federal law every credit/charge card statement you receive where there is a balance contains two types of payment information. How long it will take to pay off current balance making minimum amount due payments, and another showing if a higher amount is paid. Both will give you how long it will take paying either way *and* total interest paid/savings.


Before the credit/fiscal crisis that lead to worldwide financial market meltdowns and the great recent recession talking heads on television and those in other financial media kept on about leaving money in savings/investments and finding other ways to pay down debt. They continued doling out this advice when interest rates were at or near zero translating into credit/charge cards with single or low double digit APR. That no longer is the case.


Credit card rates are rising and will continue to do so as federal reserve raises interest rates. Even those with good to excellent credit scores are seeing APRs at 15% to 19%. Those zero percent balance transfer offers so plentiful of late are beginning to dry up as well.


Thing to remember about credit scores is they are dynamic and always changing. Yes, high utilization ( carrying high balance in relation to available credit) dings scores; but so do other things and there are ways around.


Everyone and their mother these days from Goldman Sachs (Marcus Bank) to American Express on down are offering "debt consolation" personal loans. Rates and amounts offered vary by several factors (credit score, income, etc...) and in many cases these can be a good deal, but only if used carefully and wisely.


First and foremost know *any* new debt will cause your credit score to tank initially. However because these are installment loans and not revolving credit they are treated differently on one's credit score.


If funds taken are used for the specific purpose of paying down credit card debts, then within a few months (depending upon when a card reports to credit agencies), credit score will improve as utilization to available credit ratio declines. This plus the hit that came from taking a personal loan declines in relevancy also means score should improve.


This being said one has to sit down and do some homework. What interest rate is the "debt consolation" loan offering? How much lower is it than one's highest credit card APR?


Then there are the pitfalls.


Taking out a personal loan means you have *another* monthly bill to pay. Worse installment loan repayment rates are set for life of the debt. That is unlike a credit card where as balance subject to APR decreases so do monthly payments. If you signed on the dotted line for say $10k over ten years at $200 per month, that is what you'll be paying until total balance (including interest) is paid. Interest on personal/installment loans is factored into the thing from start, much like a mortgage. Only way to pay it off sooner (and save money in interest payments) is to get at the principal amount owed. Some lenders will allow this, others simply apply extra payments each month to next month's.


The above means it is *VITAL* money goes towards stated purpose, to pay down other debts. Otherwise you are in a deeper hole than before because again you've got another bill to pay each month.


If choosing to go with a debt consolation loan one should sit down and examine all outstanding credit card debt and their APRs. Cards with highest balance and rates obviously should be targeted, but remember credit scores are impacted by *TOTAL* usage in relation to available credit.


Thus if you have a card with a total available credit of $5k, and you've only a balance of $1k (or less), you really may not need to borrow money for that card. OTOH if you have cards where usage is more than one-third of available credit, those are areas which need bringing down.


Another thing to consider is simply making a request for lower APR to credit card company. If you are an account holder in good standing (long record of on time payments, decent to good credit score, etc..) there may be offers available for a temporary (or even permanent) reduction of APR. Should this request be approved use that low interest rate period to pay down that credit card.


As for taking money out of savings or investments to cancel debt, you have to examine all angles carefully. Will there be any tax consequences for said withdrawal? How soon will you have need this invested money, and will there be time for you to replace/make up the withdrawal before funds are needed.


Finally you must consider with whatever choice is made how much bang will you get for your bucks in return.


No one likes being in debt, and it does you credit to be worried about paying things down/off. But what is the opportunity cost of money put towards paying down debt that could be used elsewhere. Do you have a decent reserve fund for emergences. Are you planning to buy a home, retire or some other major life event that wants having finances (including outstanding debt) on firmer footing.


My personal advice is if possible take a side gig and put that extra money towards paying down debt. Target one card (usually one with highest APR and or balance) and pay much over minimum each month as possible. Once that is gone, move onto next and so forth. This and or divide things up so you bring overall balance in relation to credit limits down below 1/3.


Again credit scores are dynamic, once you pay down debt, even on one high use card your score will improve.
Reply With Quote Quick reply to this message
 
Old 10-20-2018, 09:10 PM
 
Location: North West Arkansas (zone 6b)
2,661 posts, read 1,986,784 times
Reputation: 3640
my small bit of advice, since you're paying it monthly, is to pay it early in the grace period or even more than once since the interest is calculated on an average daily balance, you would save some interest by paying the bill early rather than paying it on the due date.

I paid off $40k in credit card debt in 2 years, using mostly balance transfer cards which may not be available to you with your credit score, but it doesn't hurt to try applying for one (ok it does hurt your FICO score)
Reply With Quote Quick reply to this message
 
Old 10-21-2018, 05:46 AM
 
20,537 posts, read 13,568,197 times
Reputation: 14191
Also try these suggestions: https://www.nerdwallet.com/blog/fina...debt-snowball/
Reply With Quote Quick reply to this message
 
Old 10-21-2018, 06:32 AM
Status: "On The Lookout" (set 22 days ago)
 
Location: The Triad (NC)
28,387 posts, read 61,750,545 times
Reputation: 31926
Quote:
Originally Posted by palmtreeprincess View Post
Question for some financial savvy people -
I am a 29 year old ... I make $45k/yr ... about $25,000 worth of credit card debt...
So give me some feedback...
Work more/Earn more and spend less so you can PAY OFF the debt
without disturbing anything else. Being tough is part of the remedy.

Target $1000 per month at the minimum.
That could mean taking in a housemate and/or moving.
It almost certainly means selling a few things.
Suspend add'l retirement contribution for the duration (not the balance)


Embrace the pain.
Reply With Quote Quick reply to this message
 
Old 10-21-2018, 09:42 AM
 
648 posts, read 270,295 times
Reputation: 732
Quote:
Originally Posted by MrRational View Post
Work more/Earn more and spend less so you can PAY OFF the debt
without disturbing anything else. Being tough is part of the remedy.

Target $1000 per month at the minimum.
That could mean taking in a housemate and/or moving.
It almost certainly means selling a few things.
Suspend add'l retirement contribution for the duration (not the balance)


Embrace the pain.
Agree 100% with this advice.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics > Personal Finance
Follow City-Data.com founder on our Forum or

All times are GMT -6. The time now is 09:35 AM.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top