My Debt Reduction Approach - Input Please?!

[Anonymous]

Hello Everyone!

I'm new to these forums but have been a long time lurker.  I've got a lot of help just by reading members threads and used much of the advice I've read here personally which has helped me a lot.  However, the topic of this thread is more personal to me and I need some advice.

My wife and I recently got married and almost a year ago we bought our first home.  A lot went into both since then, and I'll save you all the explanation as to what contributed to what.  But after reviewing all of our bank and credit union accounts recently, I noticed we were in the red after paying all our bills by -$660/ month!

Once I put it all together I immediately freaked out and my wife and I had a huge talk to discuss our options.

1.  First thing we did was to give my in-laws our cards to prevent us from using them until this is all under control.

2.  Consolidate our CU's and Bank accts into 2 or 3 total, since we still have our separate accounts from before we got married.

3.  I had app'd to PenFed (one of 6 CU's I'm a member of) and took out a $25k personal loan for consolidating these debts.  (Approv. for 5yr/10.99%)

This leaves me to where I am now at.  Right now we have $38k (across all accts and loan funds) available to pay down our current debts.  I'm trying to find the best way to pay off the debts that have the highest monthly minimums without completely draining our savings.  I figured in doing so, this will get our minimum monthly spending back into the black and we can then budget groceries, gas and savings from that.  I'm not sure what is better at that point.  Putting leftover into savings or putting the leftover into a specific card for a snowball attempt.  I'd love to put as much of our available funds into savings because I hate this situation and want as much emergency funds as possible.  

Here are the debts (CC's and Loans) and their minimum monthly (in order of highest monthly payments (does not include the new Penfed Loan):

1.    Loan  -             $11,470  /  $421

2.    Loan -              $5935  /  $276

3.    Cap1 -             $12,220  /  $270

4.    Lowes -           $7560  /  $240

5.    Cap1 -             $8645  /  $220

6.    Amex -             $6575  /  $203

7.    Cap1 -             $7140  /  $200

8.    Loan  -             $8585  /  $200

9.    Cap1 -             $4320  /  $150

10.  Paypal  -         $3600  /  $110

11.  Discover  -      $3450  /  $102

12.  Amazon  -       $5000  /  $100

13.  PenFed CC -  $4345  /  $87

14.  Barclay  -         $4670  /  $84

15.  Kohls  -            $660  /  $45

16.  BestBuy  -       $3200  /  $40

17.  CitiBank  -       $1500  /  $25

These are the debts we have.  

The ones in red are, I'm considering, to be the best use of the cash we have on hand to pay off now and provide us the most monthly leftover for savings and misc spending (groceries, gas, etc).  Unfortunately, this will take our savings down to around $6k left which I HATE but is necessary to stop the bleeding.  Paying these off will allow us to have approx $550/month for those miscellaneous expenses and savings.  The -$660 right now also contains our verizon plan which also has our two siblings on.  We have already arranged to get them off immediately, which will bring our $200 plan down to around $50/month.  The -$660 also has our electric bill at $250 since our home is all electric.  That was around the worst case bill during the winter.  Normally it's around $70/month.  These extra funds will be added to our monthly available of $550 to hopefully average around $800 - 850/month in the black.  Also keep in mind this is minimum payments on the cards.  

Questions:

1.  After groceries, gas, etc.... what percentage should go to savings and rest go a debts principal?

2.  Which snowball would you suggest; smallest debts first or highest APR?

3.  Should I put more of the $6k left in our savings towards another card(s)?

4.  I hate paying two of the loans off.  But fact is for the amount of the monthly payment and the amount left, it makes the most sense I feel.  Is this smart?

5.  If 'yes' to #4, after these payoffs and other CC's go to $0, should I app for another consolidation loan to get other cards paid off?  (my mid is 690, wife's is 660)

6.  Even though we really screwed up, is this the best approach to get a handle on this situation?

Thanks everyone for your input!  I apologize for the long thread.  But this has been keeping us up at night so I'm really looking forward to getting the ball rolling on this!

[Anonymous]

Always, always, always highest APRs first.  Always.  Snowball method is ridiculous if it costs you more money over time.

Also see if you can defer any non-essential utilities as a vacation hold such as cable TV, netflix, amazon prime, etc.  Live without for 6 months and some folks can put an extra $1000-$2000 towards debt by turning off non-essential expenses.

[Anonymous]

Thanks for your input!

Actually, we got rid of cable tv when we bought the house.  We only have internet as a necessity and that is $35/month.  I can look into lowering that but not sure exactly by how much.  

Other than that, we only have Netflix since thats all my wife watches.  I will bring to her attention that yearly it costs us $180 and talk about alternatives.

How about another consolidation loan?  I'm thinking that we are pretty much going to be denied even after paying off some of those debts.  Not sure how likely we would be to be accepted for one.  I've been getting pre-approved for Prosper but don't know much about them.  

[Anonymous]

Hard to say -- consolidation loans can have crazy high APRs versus credit cards and some loans report as "consumer finance accounts" which actually hurts your credit score for up to 7-10 years!  Avoid those -- only get loans from prime banks or credit unions.

One thing I would consider doing is list ALL your credit card balances WITH credit limits and then make sure to use your first payoff to get ALL your accounts under 89% utilization disregarding APR.  By bringing them below 89%, you will no longer be penalized as having maxed out credit cards.  This can help your scores quite a bit and maybe qualify you for a prime personal loan.

Do you own a home with any equity?  A HELOC might work, too.

Lastly, call all your creditors and just ask for an APR decrease.  Some will grant them even with high balances.  Don't mention trouble in paying but say "I would like to see if I can get a lower APR on this card."

[Anonymous]

Great info!

Two of the loans are through PSECU and Alliant.  I would like to try a loan through DCU or one of my major banks but am terrified of the denial.  

Are you saying that I should first make payments on all my CC debts to get each one below the 89% threshold, then put the rest towards payoffs?  Or continue with what I originally intended and then make payments on the remaining debts to get to the <89%?

We are coming up to our 1-year anniversary on owning our home.  Although we pay half the mortgage biweekly (to pay off the house faster), I do not believe we have enough equity in the home for me to apply for a HELOC.  We did an FHA w/ sellers assist so our downpayment didn't crush our savings.  I did look into HELOC however, but didn't find any information on how long one needs to wait to take one out or how much of the mortgage must be paid down before it can be available.

[stellar]

Discover and Capital One often have 0% int balance transfer offers.  Barclays too.  So if you paid those off, you could maybe transfer some of the highest int debt onto those cards.

Look in your accts online for offers.

[Anonymous]

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@Anonymous wrote:

Are you saying that I should first make payments on all my CC debts to get each one below the 89% threshold, then put the rest towards payoffs?  Or continue with what I originally intended and then make payments on the remaining debts to get to the <89%?

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Correct -- if you want to maximize your FICO08 to get a personal loan, you will want to FIRST pay down all cards to below 89% and then use the remaining cash to pay off the highest APR balances as you can.  Keep your utilization under 89% on all cards forever onwards.

If you aren't trying to maximize your credit score in 30-60 days, then just pay the highest APRs down to save money on interest accrued.

[Anonymous]

Will do!  Appreciate it!

I was thinking about 0% Balance transfers but had doubted I'd be approved for obvious reasons.

[Anonymous]

I'm honestly more worried that I'm losing money with my payments right now and wanted to stop that before doing anything.  If that makes sense?

I have a database of all my cards and their limits.  So I'll crunch some numbers and see how many are above that 89% utilization.  I'll see what it will take to bring those down and then how much I have left to get us out of red.  If that is my best chance to get a personal loan from one of my banks, it's definitely worth a look into.

[Anonymous]

In my signature is a link to a spreadsheet I made that you can freely copy and use to help you analyze your balances and payoff numbers.  Give it a try!

Note: my spreadsheet doesn't help with loans, just credit cards.  But I wouldn't stress the loans right now since utilization there is inconsequential to credit card utilization's effect on FICO.