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What is the best thing to do with my bonus next month?

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Anonymous
Not applicable

What is the best thing to do with my bonus next month?

Next month I will receive a take home bonus of approx. $10k.   Based on my current situation I am trying to determine the best use for this money.  Here is where I currently stand:

 

  • I am upside down in my car loan:  Owe $12k on a car that is only worth ~$7k.
  • I have 11 credit cards - all with balances ranging from $300 to $3,500. (8 of which have balances under $1k - 3 of these have been closed by creditor)
  • HELOC - Balance $7k (maxed out)
  • Personal loan - $3k

 

Suggestions are appreciated - just looking for the smartest thing to do.  Thanks!

Message 1 of 13
12 REPLIES 12
MattH
Senior Contributor

Re: What is the best thing to do with my bonus next month?


@Anonymous wrote:

Next month I will receive a take home bonus of approx. $10k.   Based on my current situation I am trying to determine the best use for this money.  Here is where I currently stand:

 

  • I am upside down in my car loan:  Owe $12k on a car that is only worth ~$7k.
  • I have 11 credit cards - all with balances ranging from $300 to $3,500. (8 of which have balances under $1k - 3 of these have been closed by creditor)
  • HELOC - Balance $7k (maxed out)
  • Personal loan - $3k

 

Suggestions are appreciated - just looking for the smartest thing to do.  Thanks!


Which of these has the highest APR?  I'd pay that down first unless another bill is incurring late payment penalties.  Longer term, you need to make a reality-based budget so you can dig yourself out of the hole and stay out of the hole, you shouldn't be depending on your bonus for that.

 

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Message 2 of 13
Anonymous
Not applicable

Re: What is the best thing to do with my bonus next month?

Thanks but right now I'm just concerned with what is the best thing to do with my bonus.
Message 3 of 13
MarineVietVet
Moderator Emeritus

Re: What is the best thing to do with my bonus next month?


@Anonymous wrote:
Thanks but right now I'm just concerned with what is the best thing to do with my bonus.

And Matt gave an excellent suggestion as to how to spend that bonus. I have to agree with him. Lowering the balances on your revolving credit accounts will help you the most. I'm not sure what else you are looking for.

Message 4 of 13
Jazzzy
Valued Contributor

Re: What is the best thing to do with my bonus next month?


@Anonymous wrote:

Next month I will receive a take home bonus of approx. $10k.   Based on my current situation I am trying to determine the best use for this money.  Here is where I currently stand:

 

  • I am upside down in my car loan:  Owe $12k on a car that is only worth ~$7k.
  • I have 11 credit cards - all with balances ranging from $300 to $3,500. (8 of which have balances under $1k - 3 of these have been closed by creditor)
  • HELOC - Balance $7k (maxed out)
  • Personal loan - $3k

 

Suggestions are appreciated - just looking for the smartest thing to do.  Thanks!


What are the totals on your credit card debt? Can you list your cards with the credit limits and balances? And tell us which ones are closed and which ones are open? Are all the interest rates relatively high?

 

There is some strategy involved in which ones you might want to pay first.

 

Do you know from how your credit reports calculate your utilization percentage if your HELOC is counting as a revolving line? My guess is that it is, but I wonder if you've figured that out for sure??? (Some HELOCs are counted as installment, but ones of this size are often counted as revolving, and count against you as revolving debt does.)

 

I think with more detail we could give you more detailed suggestions.

Message 5 of 13
Anonymous
Not applicable

Re: What is the best thing to do with my bonus next month?

LynetteM you raise some good points.  I forgot to mention the total amount of the credit card debt.  The total is $12,700.

I have checked and the HELOC is NOT being included in my utilization calculation.  

One of my concerns is that what if my car (which has 90k miles) starts having mechanical problems while I am still upside down in it.

Message 6 of 13
DI
Super Contributor

Re: What is the best thing to do with my bonus next month?

Pay off the HELOC.  If you mess that up you lose your home.  Put the remainder on those credit cards.
Message 7 of 13
Jazzzy
Valued Contributor

Re: What is the best thing to do with my bonus next month?


@Anonymous wrote:

LynetteM you raise some good points.  I forgot to mention the total amount of the credit card debt.  The total is $12,700.

I have checked and the HELOC is NOT being included in my utilization calculation.  

One of my concerns is that what if my car (which has 90k miles) starts having mechanical problems while I am still upside down in it.


Your car is a very valid concern.

 

I think...if this were me...that I would put $1,000 in a savings account as a buffer for expenses that might be too large to handle out of your regular monthly income. This would help out if you have car problems or expenses for your home. I hate to see you pay every penny on your credit cards and then just charge them back up if you have unexpected expenses. This thousand dollars is not nearly enough for an emergency fund...but it's a start.

 

Wow...where to go next? There are a couple of "ifs"...If FICO score was your main concern (which I don't think it should be at this point), then I would pay down credit card debt. That would be the fastest way to help your FICO scores. I wouldn't however, just pay the closed ones first. Right now their credit limits are still counted in your utilization percentage, and you don't want those balances due to go to zero yet. When they go to zero, then the credit limits no longer help you.

 

If, as you say, transportation is a huge concern, I think I would take care of paying some on the car before I would pay on the credit cards. Paying on the car won't help your FICO scores, but you have to have transportation. When you get another car eventually, you don't want to have to roll negative equity into it. If you do, your next car will likely have an ugly interest rate, and it would be nice to start getting the car loan straightened around. What about paying $4,000 on the car? That gets you closer to your equity. Also, having debts is stressful. If the negative equity in the car is adding even more stress, I'd like to see you work towards taking care of that situation sooner rather than later. Stress is bad.

 

Your HELOC is also a valid concern, as DI pointed out. You don't EVER want to jeopardize your home. You could split the remaining $5,000 (after putting $1,000 in savings and $4,000 on your car) between your HELOC and your credit cards.

 

As to your cards, it matters if cards are maxed out (that's a big negative), and it matters how many cards you carry balances on. You might want to pay off the lowest balances on your open cards....or, divide up the amount and get some paid on those that are close to their credit lines.

 

You can get on top of this. If there is any way you can bring in more income, or any way you can cut expenses...do what you can. I know that sounds simplistic, but lots of little changes can make a big difference.

 

Tell me what you think the best place is to put the bonus money...

Message 8 of 13
Anonymous
Not applicable

Re: What is the best thing to do with my bonus next month?

I concur with LynetteM.
Message 9 of 13
AndySoCal
Valued Contributor

Re: What is the best thing to do with my bonus next month?

I would concur with others have posted. I would pay off the HELOC to secure the home first and put some into savings. I would use rest to pay off as much credit card debt as possible. If you were able to pay off one more accounts with a balance I would apply those monthly payments to other credit debt. For example, if you were able to payoff to accounts that you were paying a total of $60.00 a month. If I would take that money and start applying it to another credit card debt till it was paid etc. After all the debt is paid off start making monthly payments to a savings accounts.
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