topic Re: Advice Needed: Debt Repayment Plan in Personal Finance

Advice Needed: Debt Repayment Plan

pace_it — Wed, 24 Jun 2020 21:11:13 GMT

My husband and I are wanting to buy a house in the next 2-3 years and have decided to really take an active role in paying off debt that we've accrued over the years. I'm trying to figure out the best way to tackle this while also working to improve his "thin file": he is currently a co-applicant on our auto loan and also has a paid-off 10 year old auto loan on his record. Everything else is in my name alone. Below are the details:

My scores: TU 706/EX 715/EQ ? (should be similar) 1 TU inquiry that will fall off in September

His scores: TU ?/EX 728/EQ ? - 1 TU inquiry (same as mine)

No negative marks, 100% payments made on time, newest account is 20 months old, etc.

Balances:

Discover Card: $20,500 @ 16.99V% APR, 98% utilization, min payment $420

Visa FCU Card: $4,850 @ 6.90% APR, 97% utilization, min payment $120

Auto Loan: $7,065 @ 8.10% APR, 45 months remaining, $185/mo

I've already moved all bills, recurring charges, etc, off of the credit cards except for one minimal charge per month to keep them active. We just paid off our other vehicle this month, so I have an extra $500 per month to apply in addition to any windfall, bonuses, extras we receive. We have also moved to a cash allowance to reduce temptation of further spending on the cards.

My first thought was to go ahead and tackle the "monster" avalanche-style and pay down the Discover balance first. However, after reading a few similar threads on here, I'm now thinking of knocking down the Visa card to below 30% utilization - which should be achievable by the end of the year - and add my husband as a joint user to help build his account history. Once that has been accomplished, I would then shift focus to paying down the Discover card in hopes of eventually receiving a few decent BT offers. I would eventually like to add my husband as a joint user on the Discover card as well, but am also aware how that may play into the timeline with buying a home.

I'm not really worried about the auto loan.

So what are your thoughts on this repayment plan: any improvements, changes, or other ideas I should consider? Am I going to be setting myself up for balance chasing with Discover as I pay it down?

Any advice is appreciated.

Re: Advice Needed: Debt Repayment Plan

tcbofade — Wed, 24 Jun 2020 19:54:11 GMT

If you pace yourself, Discover should be fine.

Get both credit cards under 88.9% utilization FIRST.

Then get both cards under 68.9%.

Then get both cards under 48.9%.

Then work on which ever one you want to.

2-3 years is plenty of time.

Good luck!

Re: Advice Needed: Debt Repayment Plan

Kforce — Wed, 24 Jun 2020 20:13:36 GMT

@tcbofade wrote:
Get both credit cards under 88.9% utilization FIRST.
Then get both cards under 68.9%.
Then get both cards under 48.9%.
I would attack the high interest card after both are under 48.9%.

He should get a couple of cards of his own, skip the AU

Re: Advice Needed: Debt Repayment Plan

SlideOrInsert — Wed, 24 Jun 2020 20:31:24 GMT

but how much can you pay monthly total towards the credit cards?

excel tells us that for about ~$1200/mo you can pay both down in 2 years. if ~2% in minimum payments on ~25000 is 500 and you mention an "extra 500" a month available you're almost there.

	rate	nper	pv	=pmt	=cumipmt
discover	16.99	24	20500	−1013	−3823
visa fcu	6.9	24	4850	−217	−356
discover	16.99	36	20500	−731	−5808
visa fcu	6.9	36	4850	−150	−533

if that is possible just pay the calculated monthly amounts, in 2-3 months you will be under 88% on both versus ballooning one then the other, etc.

additionally, as someone else said, if he can get a couple of his own with balance transfer offers try that to save some interest dollars.

Re: Advice Needed: Debt Repayment Plan

pace_it — Wed, 24 Jun 2020 20:54:55 GMT

We're paying around $1200/mo total (including the additional $500).

Interest on the Discover is split per balances due to previous APR reductions & variable interest rates. I gave a rough rounded estimate. Currently it sits at the following:

$9,000 @ 14.24%

$7,700 @ 16.24%

$3,800 @ 18.24%

I've also updated the OP with minimum monthly payments.

Re: Advice Needed: Debt Repayment Plan

RSX — Wed, 24 Jun 2020 20:50:34 GMT

agreed with this

Get both credit cards under 88.9% utilization FIRST.

also - he should open 2 cards - forget about adding him as an AU

you have very high individual utilization AND very high overall utilization - you need some breathing room

start by using the extra $500 to get both into a more 'lender friendly' zone

that discover interest alone is $290/mnth which is crushing you

also - cut out any and all 'extras' for as long as possible - TV subscriptions - cut your cell bills if possible - look everywhere to cut costs

make even $5 payments on the cards if you have extra

it will all add up and you will get through this

good luck

Re: Advice Needed: Debt Repayment Plan

SlideOrInsert — Wed, 24 Jun 2020 21:41:08 GMT

the blended rate is 15.73%, does not change the math much.

keep motivated!

I'm 18 months into paying off ~34000 with 14000 to go. it is a real grind sometimes but I should be done in another 10 months. technically I could pay it off in Jul 2020 if I exhaust my emergency fund. the good thing is in Feb/Mar 2020 I got it all packed into one account/payment with a 0%/12mo promo balance transfer to NFCU.

Re: Advice Needed: Debt Repayment Plan

pace_it — Wed, 24 Jun 2020 21:31:22 GMT

@SlideOrInsert Way to go! That's inspiring.

We're in the same boat: I could take a big chunk out of this by using our emergency savings or long-term savings, but I would rather not do that. We've already trimmed the fat from our monthly expenses and are trying to focus on not only eliminating debt, but also making sure our HSA, 401K, and IRAs are not forgotten. Finding the balance between it all is tough.

Re: Advice Needed: Debt Repayment Plan

FlaDude — Wed, 24 Jun 2020 21:46:03 GMT

@SlideOrInsert wrote:
the blended rate is 15.73%, does not change the math much.

keep motivated!

+1, lots of us here are in or have been in the same boat. I'm three years into paying off $80k, should be finished in February. The interest can be a killer, reducing that was a big key for me. When I started, I had $2k/mo min payments with $950 in interest. A combination of low interest loans (6-7%) and balance transfers quickly got that down around $350, which is now about $70/mo in interest on $18k balance. I know some posters recommend against serial balance transfers (repeated refinancing BTs when the promo rate ends), but it has worked for me, and I should be on the final round at this point.

Note that there have been reports that some lenders are reducing BT offers so they might be harder to find than they were a few months ago.

Re: Advice Needed: Debt Repayment Plan

RSX — Wed, 24 Jun 2020 21:46:54 GMT

good work on cutting costs

i would look at stopping the HSA and IRA short term

if you get a match on the 401k, that is a 50% return, so keep that going

but the HSA and IRA arent making you 16.99%, so the debt reduction is a better priority in my opinion

Re: Advice Needed: Debt Repayment Plan

Jordan23ww — Wed, 24 Jun 2020 21:49:53 GMT

@pace_it wrote:
My husband and I are wanting to buy a house in the next 2-3 years and have decided to really take an active role in paying off debt that we've accrued over the years. I'm trying to figure out the best way to tackle this while also working to improve his "thin file": he is currently a co-applicant on our auto loan and also has a paid-off 10 year old auto loan on his record. Everything else is in my name alone. Below are the details:

My scores: TU 706/EX 715/EQ ? (should be similar) 1 TU inquiry that will fall off in September
His scores: TU ?/EX 728/EQ ? - 1 TU inquiry (same as mine)
No negative marks, 100% payments made on time, newest account is 20 months old, etc.

Balances:
Discover Card: $20,500 @ 16.99V% APR, 98% utilization, min payment $420
Visa FCU Card: $4,850 @ 6.90% APR, 97% utilization, min payment $120
Auto Loan: $7,065 @ 8.10% APR, 45 months remaining, $185/mo

I've already moved all bills, recurring charges, etc, off of the credit cards except for one minimal charge per month to keep them active. We just paid off our other vehicle this month, so I have an extra $500 per month to apply in addition to any windfall, bonuses, extras we receive. We have also moved to a cash allowance to reduce temptation of further spending on the cards.

My first thought was to go ahead and tackle the "monster" avalanche-style and pay down the Discover balance first. However, after reading a few similar threads on here, I'm now thinking of knocking down the Visa card to below 30% utilization - which should be achievable by the end of the year - and add my husband as a joint user to help build his account history. Once that has been accomplished, I would then shift focus to paying down the Discover card in hopes of eventually receiving a few decent BT offers. I would eventually like to add my husband as a joint user on the Discover card as well, but am also aware how that may play into the timeline with buying a home.

I'm not really worried about the auto loan.

So what are your thoughts on this repayment plan: any improvements, changes, or other ideas I should consider? Am I going to be setting myself up for balance chasing with Discover as I pay it down?

Any advice is appreciated.

I recently wrote a post about my credit build I did from August 2019 until June this year. I'll share the link in case you wanted to check it out. I was able to get rid of $10,200 in credit card debt and I had been carrying 100% utilization for about 6 years in a row, now I have 0% utilization.

My recommendation for y'all would be to use the snowball method and start with FCU card. Pay as much as you possibly can to that balance. Up to you on how much to pay on Discover. Usually with the snowball method you attack one card with all the money you can and only pay the minimum on your other cards but I tried to pay more than the minimum on my other cards during my rebuild (see my post for more details). After you pay off the FCU then put everything you can on the Discover card. Also see if your husband can get approved for his own credit card (either unsecured or secured) to help his profile. Have him keep the utilization under 8% each month. I think that you will be able to get to your goal in a decent amount of time once you get the ball rolling! Rooting for yall, you can do this!

https://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/My-Wild-and-Crazy-Credit-Rebuild-August-2019-June-2020/m-p/6051272#M621098

Re: Advice Needed: Debt Repayment Plan

Jordan23ww — Wed, 24 Jun 2020 22:00:09 GMT

@pace_it wrote:
@SlideOrInsert Way to go! That's inspiring.

We're in the same boat: I could take a big chunk out of this by using our emergency savings or long-term savings, but I would rather not do that. We've already trimmed the fat from our monthly expenses and are trying to focus on not only eliminating debt, but also making sure our HSA, 401K, and IRAs are not forgotten. Finding the balance between it all is tough.

Not trying to force the philosophies of Dave Ramsey down your throat but his advice is to only have $1000 in savings and then put everything you can towards attacking the debt. Also he recommends pausing payments to investment and retirement accounts until you get out of credit card/ loans debt. Once the only thing that is left is a mortgage then he has people resume those contributions. If you decide to use some savings and pause these contributions you could speed up the process of eliminating the credit card and auto loan balances. Definitely up to y'all though.

Re: Advice Needed: Debt Repayment Plan

pace_it — Thu, 25 Jun 2020 16:32:25 GMT

Thanks for the advice, everyone. There's a lot of good info here for me.

We just cancelled a trip we had planned on taking this fall, so I'm going to take and put $1500 from that money as a lump payment between the cards. I also looked at our emergency & long-term savings balances and found where I can cut some monthly deposits to instead reroute toward debt. That should add another $300/mo: now making payments $1500/mo total.

I'm going to continue the HSA & IRA payments since they're minimal but add up over time: I work for a small family-owned business so I don't have those as employer-funded benefits. We also make use of the HSA for medical expenses.

Additionally, we're going to look into a couple optimal card options for my husband with BT offers in mind. Feel free to throw in any suggestions to research.

I don't have a problem with Dave Ramsey (other than maybe his ELP program for insurance brokers, but that's another story) and tend to combine his debt advice with that from financial blogs. My initial goal was to have one month's expenses immediately available for emergencies. But, I can make do with $1,000 in place of that and falling back on our long-term savings as the excess while paying this down.

Thanks again for all the help! I'll keep this updated as progress continues.

Re: Advice Needed: Debt Repayment Plan

Anonymous — Sun, 12 Jul 2020 03:23:01 GMT

Based on your numbers I would go a different route.

tackle the visa first. You said you have $500 extra every month plus $1500 you can put towards a debt. This also depends on your monthly income but same situation as you just different amounts and now I'm down to 1 card to pay.
Hopefully your income is at least 5k a month. And you have some savings just in case. We will be preserving flexibility as we get rid of your debt.
Use your entire 5k to pay off the visa. Now you still have the &1500 you said that was for a trip. Add this to savings for now. Pay all your current months bills with your visa we just payed off. That should leave you about a $4380 balance. (Estimating bills at $4500-$120 that we no longer have to pay visa since we already payed it). Now pay the $1500 to the visa. Leaves $2880. Next paycheck pay off the $2880. Pay your bills with remaining cash and card. Your new balance should be $2260( $500 extra cash and the $120 normal payment since we already paid visa for the month). Rinse and repeat. So in 6 months you will be done paying the visa and at 0 balance.
pat yourself on the back. It's car time

Use your visa and pay $5000 on the car. Then do the same as you did for the visa until the balance down enough to finish off the car. Should be another 6 months to payoff car. Now you will payoff visa again but this time you have the $120 regular payment + $180 car money + $500 extra every month. So $800 a month to pay it off. So 7 months and in month 7 you'll have an extra 600 to drop on discover.
due to higher rate on discover. I would then use the visa to pay $5000 on the discover or you can just make an extra $800 payment every month on discover card.
recycling your income by paying all to the credit card then paying bills with the card is not magic. It just reduces the avg daily balance the interest is calculated on so you can save on the interest.
not bad though. Year and a half to payoff $13000 in debt

Re: Advice Needed: Debt Repayment Plan

pace_it — Tue, 14 Jul 2020 17:37:53 GMT

@Anonymous That's an interesting method.

Unfortunately I don't think I'm able to make traditional payments to my existing debt (auto loan & credit card) with a credit card. At the least, I could focus on paying down/off the Visa and requesting a balance transfer for a portion of the auto loan or Discover balance. I'll have to take a look at the overall fees, interest, etc, associated with all of that.

Thanks for the feedback.

Re: Advice Needed: Debt Repayment Plan

Anonymous — Tue, 14 Jul 2020 22:12:01 GMT

Check on melio or plastiq the fee might not be as bad as paying the interest and I think one of them is doing no fee for a trial period. You pay cc they mail the check. My auto loan uses mycheckfree service at no additional cost so that works for me.

Re: Advice Needed: Debt Repayment Plan

Anonymous — Fri, 31 Jul 2020 20:00:40 GMT

It's been a month since your post. How has your plan going so far?

What wins or challenges (murphy) have you encountered?

Re: Advice Needed: Debt Repayment Plan

pace_it — Sat, 03 Apr 2021 22:14:23 GMT

Checking in.

We've been chipping away at it. Making progress with minimal hiccups along the way, so far. *Fingers crossed* it stays that way. Biggest setback so far is the dog needing ACL surgery on both knees (approx $4500 per knee for everything), but her pet insurance reimburses us for 80% of the expenses.

I applied for a CareCredit card last fall to help keep interest down on those expenses via their deferred interest promotions. Between that and the husband's new Visa (same as mine), it helped to keep it off the Discover card. On the upside, I was recently able to put a $5,000 lump sum payment toward the Discover balance.

Numbers are a bit funky since we're between reimbursements on pet health insurance and my Visa is floating the difference in the meantime. But here's where we're at currently:

Discover: $8,576
My Visa: $4756*
CareCredit: $0 (just paid off interest-free)
Auto Loan: $5660

His Visa: $658 (paying off next week)

Barring no other surprise expenses, NerdWallet's debt calculator shows everything but the car loan paid off as early as February of next year. I'm making it my goal to accelerate that further.

Re: Advice Needed: Debt Repayment Plan

pace_it — Fri, 24 Sep 2021 20:50:09 GMT

Things are moving along, so another update wouldn't hurt.

Husband got a new job mid-summer that resulted in a solid pay raise & the benefit of working from home. Win-win. We've opted to retain our previous household expenses and are applying the extra toward debt repayment. I even found some small monthly bill cuts (extra streaming services, monthly Barkbox, etc) and requested a credit re-score with insurance for better pricing, so we're operating on a pretty lean budget: 48% of our net income.

I also took a gamble and utilized an offer from Discover: 0% BT for 12 months. Since 2021 looked like a crapshoot for vacations - thanks, Delta variant - I made a $5,000 payment from our savings toward my Discover balance (shown in my previous post) before initiating the balance transfer from my $4,500 Visa balance. Clearing off (most of) that card's balance helped to bump my credit score back up rather quickly.

Current balances:

Discover: $7289
My Visa: $730
CareCredit: $0
Auto Loan: $4660

His Visa: $1000 (he's waiting on reimbursement for work purchases)

We're currently making $3,000 monthly payments toward the Discover card. Everything else is pretty minimal until I get that paid off. If things continue as is, the updated timeline looks like December for the cards being paid off & January for the car payments to be finished. I'm ready for it.

Re: Advice Needed: Debt Repayment Plan

KatSoDak — Sat, 25 Sep 2021 01:52:48 GMT

Really impressive to see the progress you've made!