Large CC debt, and feeling overwhelmed (sorry, it is long)

[moneyae2015]

I am a MM regular but created this AE for help.

Currently, my partner and I have $38,775 in credit card debt. We have no children and no pets, and are in our mid-30s. We both have stable and decent paying jobs.

CC1- $14,408 @ 11.99%; min pmt: $285 (we pay $300); avail credit $234
CC2- $2,258 @ 17.99%; we pay this off every month; avail credit $7k
CC3- $12,643 @ 12.99%; min pmt: $285 (we pay $300); avail credit $857
CC4- $3,084 @ 0% APR (through Jan 2016); $771/mo to pay it off by Dec 2015
CC5- $6,382 @ 13.24%; min pmt $115 (we pay $120); avail credit $6k

Currently pay $1,491/mo (excludes CC2 balance, which we pay in full monthly). In 2016, we can afford to pay $1,285/mo.

Our plan:
Once we pay off CC4 at the end of Dec, we will begin snowballing our debt into the next highest % CC (CC5), while making just above min payments on the other CC. My amortization calculator shows us paying this off by Dec 2017 (we’ll be using my partner’s 2016 bonus to help bring down the balance too).

Our question:
Should we look into doing a debt consolidation/going to CCCS? Or try to transfer some to a 0% credit card? (My credit is poor, but my partner’s credit is considered excellent.) Or, use some of our HELOC ($7,500 avail credit; $0 balance) to absorb some of the debt?

We looked into debt consolidation loans (CCCS per Suze Orman), but after the APR and interest rate, we’re paying more than the APR that is already associated with our credit card... and that is using my partner’s excellent credit history (just did a quick online application).

Just need some guidance as to what we should do- look towards going to see a debt management program or just pay off high % APR cc first until we’re debt free?

[AAM2012]

Once you pay of CC4 it will free up quite a bit to put towards the others. I would next focus on CC2 and then CC5, CC3, CC1 in that order

I think you can manage this without a debt management program but others may be able to chime in as I am not too familiar with them.

Have you stopped using these cards? Is thee any room in you budget to cut back and put more towards this debt?

[mich1]

What are you using CC#2 for? If it is monthly expenses like gas and groceries, can you halve it?

Once you get done paying off #4, if you can throw $2000/mo at it, you can knock hat out in 3 months and go after the 2 biggies.....#1 and #3.

I wouldn't bother with a debt consolidation service.

[moneyae2015]

AAM2012, pennypenny, mich1- I have stopped using these cards. The only card we are using is CC2, as this is what we use to pay for gas and groceries, but we also pay this off in full every month.
We have already trimmed down the gas and groceries.

We looked at debt programs, but I'm worried it'll take a hit on our credit scores and even those we qualified for (instant online applications), we're looking at 9.99% APR which isn't far off from our current cc APR

[Pom]

We had more debt than this 11 years ago and we did exactly what you are doing. You don't need CCCS, you can see the way out.
Cut expenses, pay-off to the highest interest rate, rinse, repeat. You can do this. Writing it all down and looking at it is the first step. Sticking to it and throwing every extra penny you can find at it is the second. We are cheering you on!

[y4m]

I don't see CCCS helping here. You might get a small overall APR dip on some cards, but you'd also lose the ability to snowball highest to lowest and apply your dollars to the highest rate debt. The snowballing plan is solid as long as you can stick to it.

[ESF]

Assuming CC#2 is your day to day living expenses, what happens when you spend more than $2258 a month in living expenses? Do you pay less on one of the other cards? If not, where is that money coming from? If you spend less than $2258 a month, where does that money go?

Why will you only be able to afford less per month in 2016 than in 2015?

[ESF]

Aug 16, 2015 16:39:46 GMT -5 @foodielicious said:

This one may be unpopular but if you have 3 months in savings, and are still contributing to savings, I'd stop saving until you pay off the ccs.

Right now you're "spending" around 11% in interest while probably earning no more than 2%. Yes, you need to have a little money available for small emergencies but if there is a big emergency and you have paid off some or all of the cards, you'll have them to fall back on in a dire situation. In the mean time, it will free up more money for you to put into this.

Even more unpopular, if you're saving more than your employer match in 401K consider dropping a little to throw at this, then bump it back up again (and more) when you're done.

I don't see where she says this, but if it's true, I'd take two of those three months in savings and put it towards the cards. 

She has no kids, no pets, and stable jobs. The chances of disaster seem very, very small.  If disaster strikes and they run through their e-funds, they can use the CCs.  That seems better to me than letting thousands of dollars sit around because something might happen.

[ESF]

Aug 16, 2015 16:53:33 GMT -5 @foodielicious said:

ESF that was my point.

I was trying to tell her that she didn't need more than 3 months expenses in savings. A lot of people say 1 month but that gives me hives. I feel like 3 months is a good cushion that will take care of most situations.

Oh I see.

I can't imagine owing that much CC rate at that high of an interest rate and just have $15k of money sitting around in a savings account eating 1% because of an off chance you get hit by a bus.  That would give me hives. 

Let's say someone has $10k in CC debt at 15%, and a $15k three month e-fund earning 1%. They have $1000/month to put towards debt or savings.  

One scenario would be to pay off the cc debt immediately.  In that case, in six months, they will have $11k and change in the bank and no CC debt.  

In the other scenario, they'd pay $1k a month towards the CC debt. In that situation, they'd have $15k and change in the bank and nearly $5k in CC debt.   

Their net worth is $1000 higher in scenario #1 than in #2.  If after six months, one of them gets hit by a bus, I don't understand why they are in a better situation simply because they have more cash on hand.  If disaster hits, yes, they will need to resort to relying on their CC a couple weeks faster in #1 than in #2 if the situation even lasts that long or is that severe.  Even then, in situation #2, you'd still have more CC debt for quite a while.

To me, the first seems far more financially sound, especially given they have no children or pets, so they have fewer possibilities for emergencies.   I understand some people feel better when they have more money in the bank, but for me, personally, that kind of piece of mind is not worth throwing away $150/month in lost opportunity cost.

I would advise the OP to think about it similarly.

[Deleted]

Aug 16, 2015 16:24:52 GMT -5 moneyae2015 said:

AAM2012, pennypenny, mich1- I have stopped using these cards. The only card we are using is CC2, as this is what we use to pay for gas and groceries, but we also pay this off in full every month.
We have already trimmed down the gas and groceries.

We looked at debt programs, but I'm worried it'll take a hit on our credit scores and even those we qualified for (instant online applications), we're looking at 9.99% APR which isn't far off from our current cc APR

This is coming from someone who is also in debt pay off mode...

1. Stop using cc2. $2200 is a lot for groceries and gas, so I presume you're putting more than that on it and not tracking your budget that carefully. Until you're debt free, use only debit or cash.

2. What does your savings account look like? If you have over $1000 in there, take anything above $1000 to pay toward debt. If not, save until you get to $1000 and then everything else goes toward debt.

3. Snowball so you're paying on the highest interest debt first. Then keep going until it's all gone.

I personally wouldn't look in to credit counseling or transferring to 0% as it seems like a hassle to me. Just set up your payments and then keep chugging along till it's all gone. It does suck but I just look at it as another bill and look forward to feeling rich when it's all paid off and I can pocket the money each month!

[sfy]

I still think you should stop using CC2. Even if the purpose is to get rewards, you are likely to spend less if you stick with cash. I agree with snowballing, but I do not think tapping into your HELOC is the way to go or that a credit counseling service going to do much that you can't do if you stay the course. Good luck!

[thatgirl2478]

Do you have any savings? Honestly, in your case I would follow Dave Ramsey's plan:

1,000 savings (since you're pretty unlikely to have a bigger emergency)
use extra savings to pay down the cards starting with the smallest balance & working up to the biggest (aka a snow ball) -this includes stopping 401k contributions temporarily
then work on building back up to 3-6 mo expenses saved
then contribute 15% to your 401k (more if you needed to stop your contributions while working on the snow ball)

[Deleted]

Aug 16, 2015 17:27:09 GMT -5 thatgirl2478 said:

Do you have any savings? Honestly, in your case I would follow Dave Ramsey's plan:

1,000 savings (since you're pretty unlikely to have a bigger emergency)
use extra savings to pay down the cards starting with the smallest balance & working up to the biggest (aka a snow ball) -this includes stopping 401k contributions temporarily
then work on building back up to 3-6 mo expenses saved
then contribute 15% to your 401k (more if you needed to stop your contributions while working on the snow ball)

I don't agree with paying on the smallest balance first. Although it may be more gratifying, you're paying extra money that's unnecessary if you don't get of the higher interest rate as quick as possible. I think you should always pay highest interest first and go from there to lessen the amount of interest you pay over time.

[moneyae2015]

Just to clarify- My monthly grocery/gas isn't $2,200. It's $650/mo. My partner's father recently passed away, and we placed the airfare on the credit card. We have this money allocated since we knew he was passing away shortly.

We also have $3k in true savings (doesn't include what we just spent on the airfare), and also max out Roth IRA's and HSA's.

ETA- We also put in 16% gross into our 401k (with company matches, we are at 17/18%)

[Deleted]

Aug 16, 2015 17:54:18 GMT -5 moneyae2015 said:

Just to clarify- My monthly grocery/gas isn't $2,200. It's $650/mo. My partner's father recently passed away, and we placed the airfare on the credit card. We have this money allocated since we knew he was passing away shortly.

We also have $3k in true savings (doesn't include what we just spent on the airfare), and also max out Roth IRA's and HSA's.

ETA- We also put in 16% gross into our 401k (with company matches, we are at 17/18%)

Well that's good.

I still stand by the advice to stop using the cc. $650 isn't all that much that you're getting amazing rewards anyway, so I'd just be more disciplined to use debit/cash. It's all about building new habits.

And definitely take some money from savings to put towards the debt.

[ESF]

Aug 16, 2015 18:35:28 GMT -5 @wandering said:

Aug 16, 2015 17:54:18 GMT -5 moneyae2015 said:

Just to clarify- My monthly grocery/gas isn't $2,200. It's $650/mo. My partner's father recently passed away, and we placed the airfare on the credit card. We have this money allocated since we knew he was passing away shortly.

We also have $3k in true savings (doesn't include what we just spent on the airfare), and also max out Roth IRA's and HSA's.

ETA- We also put in 16% gross into our 401k (with company matches, we are at 17/18%)

Well that's good.

I still stand by the advice to stop using the cc. $650 isn't all that much that you're getting amazing rewards anyway, so I'd just be more disciplined to use debit/cash. It's all about building new habits.

And definitely take some money from savings to put towards the debt.

One thing I should point out.  $1k may not be big enough.

The most likely emergency she's going to have is a Target-type data breach that drains a checking account completely in the blink of an eye, and takes a few weeks for the cash to get restored.  Using debit cards for everything is going to increase her exposure.  If she's going to be using her debit card and thus, putting her checking account out there for that kind of risk, she needs more than $1k in savings so that if it takes 3 weeks for her bank to put her cash back in her account, she can pay CC minimums, mortgage/rent, and other things that cannot be paid for with a credit card to avoid late fees and being penalized with higher interests.

I'm not big on having wads of cash sitting around because of hypotheticals, but given the risk exposure from just using a debit card, you need to have enough extra cash to cover bills over a very short period of time.  Maybe $1k is enough. But a minimum, I'd have enough extra in cash to buy a couple tanks of gas, some groceries, and to make a round of CC payments, a mortgage/rent payment, and any other debt payments (car, SL, etc).

[moneyae2015]

Thank you for sharing your thoughts. I knew I could count of you guys. I am going to try to talk to my partner about not going to the CCCS route, and since we have $3k in savings, I like the idea of just putting what we were into savings (monthly budget $250) as extra $ to put towards cc debt.

[aurora]

You've gotten good advice and you can do this! The picture really isn't that bleak given your plan, and I agree with adding the $250 savings to your debt payoff.

I did want to emphasize not putting any of this on your HELOC. It's usually a bad idea to turn unsecured debt like a CC into secured debt like a HELOC.

[moneyae2015]

Is there a snowball debt calculator for Excel? I've see variations of it online, but every calculator has "# months you want to pay it off" field. What I am looking for is to add multiple credit cards, input $ amount I want to put towards it, and see how long it will take.

Previously, I used an amortization Excel doc, and I needed to input the term in # of years, and I don't have a goal in mind; more I know how much I can afford to put towards cc debt monthly.

[livinitup]

What caused you two to run-up this much debt and what has changed that you no longer need to put those expenses on credit anymore? Do you have more income? Significantly less expenses?

Who's name is on each card? Did you both run-up this debt together or did one of you bring it to the relationship? Does that (or should it) factor into your pay-off plans?

And this may or may not be related to who's ne is on the debt- What are you doing to rebuild your credit score?

[megstoo]

I haven't seen this posted but what about picking up a 2nd job on the weekends? This will give you a little extra money towards your debt. I am doing this now and it's an extra $500 a month I'm able to put toward paying down debt.

[moneyae2015]

Aug 17, 2015 9:10:13 GMT -5 megstoo said:

I haven't seen this posted but what about picking up a 2nd job on the weekends? This will give you a little extra money towards your debt. I am doing this now and it's an extra $500 a month I'm able to put toward paying down debt.

This is something we are considering

[hellonurse]

Aug 16, 2015 20:31:54 GMT -5 moneyae2015 said:

Is there a snowball debt calculator for Excel? I've see variations of it online, but every calculator has "# months you want to pay it off" field. What I am looking for is to add multiple credit cards, input $ amount I want to put towards it, and see how long it will take.

Previously, I used an amortization Excel doc, and I needed to input the term in # of years, and I don't have a goal in mind; more I know how much I can afford to put towards cc debt monthly.

Undebt.it does this! It's great- free, and you can use debt snowball or debt avalanche. 

undebt.it/index.php

[agnes]

Aug 18, 2015 8:24:36 GMT -5 hellonurse said:

Aug 16, 2015 20:31:54 GMT -5 moneyae2015 said:

Is there a snowball debt calculator for Excel? I've see variations of it online, but every calculator has "# months you want to pay it off" field. What I am looking for is to add multiple credit cards, input $ amount I want to put towards it, and see how long it will take.

Previously, I used an amortization Excel doc, and I needed to input the term in # of years, and I don't have a goal in mind; more I know how much I can afford to put towards cc debt monthly.

Undebt.it does this! It's great- free, and you can use debt snowball or debt avalanche. 

undebt.it/index.php

What's the difference between debt snowball and debt avalanche?  

[illgetthere]

Aug 18, 2015 9:35:25 GMT -5 agnes said:

Aug 18, 2015 8:24:36 GMT -5 hellonurse said:

Undebt.it does this! It's great- free, and you can use debt snowball or debt avalanche. 

undebt.it/index.php

What's the difference between debt snowball and debt avalanche?  

The debt avalanche is what MM typically recommends without realizing it. It is paying from highest interest rate down whereas the debt snowball is building momentum by starting small and rolling into each other.

Edit: this one takes more math so it's not as "fool proof", but I like the concept.

frugal-fanatic.blogspot.com/2015/02/the-debt-spiral.html?m=1

[agnes]

Aug 18, 2015 9:52:37 GMT -5 illgetthere said:

Aug 18, 2015 9:35:25 GMT -5 agnes said:

What's the difference between debt snowball and debt avalanche?  

The debt avalanche is what MM typically recommends without realizing it. It is paying from highest interest rate down whereas the debt snowball is building momentum by starting small and rolling into each other.

Heh, I've never heard the term debt avalanche before.  It's always been snowball to me.  Just different snowballing methods.  Makes sense.  I like it.