topic Re: Family member drowning in debt - help with repayment plan in Personal Finance

Family member drowning in debt - help with repayment plan

jetsfan2013 — Mon, 07 Feb 2022 17:48:06 GMT

Im hoping to get some advice from the community for my family member (younger brother). He is roughly $110k debt post divorce, and trying to pick up the pieces financially.

What he has shared:

Annual income - $125K, with a bonus being paid out of $25K next month that he wants to use to springboard his debt payoffs.

Debts - $123k

Ford F150 he plans on likely selling - $53K

Student Loan - $31K

Credit Cards - $34K

Line of Credit - $3K

Personal Loan - $2.2K

He shared he is upside down on his F150 by $7K, however the $840/mo payment is weighing on him, and he is willing to take a chunk of the bonus money he receives and apply that to that debt to complete the sale.

After that - he is torn on if he should attack the revolving debt first, the student loans, etc.

Re: Family member drowning in debt - help with repayment plan

dragontears — Mon, 07 Feb 2022 17:52:55 GMT

@jetsfan2013 wrote:
Im hoping to get some advice from the community for my family member (younger brother). He is roughly $110k debt post divorce, and trying to pick up the pieces financially.

What he has shared:

Annual income - $125K, with a bonus being paid out of $25K next month that he wants to use to springboard his debt payoffs.
Debts - $123k
Ford F150 he plans on likely selling - $53K
Student Loan - $31K
Credit Cards - $34K
Line of Credit - $3K
Personal Loan - $2.2K

He shared he is upside down on his F150 by $7K, however the $840/mo payment is weighing on him, and he is willing to take a chunk of the bonus money he receives and apply that to that debt to complete the sale.
After that - he is torn on if he should attack the revolving debt first, the student loans, etc.

Revolving debt before any loans unless DTI is an issue (i.e. his truck payment) or he has a loan with >20% APR.

Re: Family member drowning in debt - help with repayment plan

jetsfan2013 — Mon, 07 Feb 2022 17:57:08 GMT

Thanks. He is planning on renting for a year or two (his ex wife got the house), before he looks to buy again, and goal is to lessen the monthly payment minimums/debt load the fastest.

Re: Family member drowning in debt - help with repayment plan

dragontears — Mon, 07 Feb 2022 18:13:28 GMT

@jetsfan2013 wrote:
Thanks. He is planning on renting for a year or two (his ex wife got the house), before he looks to buy again, and goal is to lessen the monthly payment minimums/debt load the fastest.

Credit cards tend to have the highest interest rates and the biggest impact on scores.

Re: Family member drowning in debt - help with repayment plan

CYBERSAM — Mon, 07 Feb 2022 18:20:39 GMT

Sell the F150! Use 25K to buy a used 10-15K car/truck

Payoff the CCs with highest APR first.

This also improve the FICO score for future loans.

Reduce the overall spending for next couple of years till he can restart again!

Re: Family member drowning in debt - help with repayment plan

jetsfan2013 — Mon, 07 Feb 2022 18:23:16 GMT

Thanks. Luckily he is being gifted a 2004 Honda by another family member to get to/from work once he sells the truck.

Re: Family member drowning in debt - help with repayment plan

SouthJamaica — Mon, 07 Feb 2022 20:28:55 GMT

@jetsfan2013 wrote:
Im hoping to get some advice from the community for my family member (younger brother). He is roughly $110k debt post divorce, and trying to pick up the pieces financially.

What he has shared:

Annual income - $125K, with a bonus being paid out of $25K next month that he wants to use to springboard his debt payoffs.
Debts - $123k
Ford F150 he plans on likely selling - $53K
Student Loan - $31K
Credit Cards - $34K
Line of Credit - $3K
Personal Loan - $2.2K

He shared he is upside down on his F150 by $7K, however the $840/mo payment is weighing on him, and he is willing to take a chunk of the bonus money he receives and apply that to that debt to complete the sale.
After that - he is torn on if he should attack the revolving debt first, the student loans, etc.

1. Obviously if the truck payment is killing him he needs to do whatever he needs to do to get out from under it.

2. Then he should focus on the revolving stuff; get rid of the PLOC [balance] altogether; get the credit cards to 28% or less on each, then zero some out if there's anything left over.

A possible strategy, if he hasn't explored refinancing the truck loan, would be:

(a) put some of the money aside temporarily;

(b) pay down revolvers as mentioned above;

(d) if scores have improved significantly, explore refinance at lower rate, particularly with a credit union.

But of course if he doesn't need the truck for making a living, he should sell it.

Re: Family member drowning in debt - help with repayment plan

jetsfan2013 — Mon, 07 Feb 2022 18:46:57 GMT

Why the suggestion of getting rid of the PLOC?

Re: Family member drowning in debt - help with repayment plan

SouthJamaica — Mon, 07 Feb 2022 20:28:18 GMT

@jetsfan2013 wrote:
Why the suggestion of getting rid of the PLOC?

I didn't mean get rid of it, I meant get rid of the balance.

Re: Family member drowning in debt - help with repayment plan

Cowboys4Life — Mon, 07 Feb 2022 20:58:25 GMT

@jetsfan2013 wrote:
Im hoping to get some advice from the community for my family member (younger brother). He is roughly $110k debt post divorce, and trying to pick up the pieces financially.

What he has shared:

Annual income - $125K, with a bonus being paid out of $25K next month that he wants to use to springboard his debt payoffs.
Debts - $123k
Ford F150 he plans on likely selling - $53K
Student Loan - $31K
Credit Cards - $34K
Line of Credit - $3K
Personal Loan - $2.2K

He shared he is upside down on his F150 by $7K, however the $840/mo payment is weighing on him, and he is willing to take a chunk of the bonus money he receives and apply that to that debt to complete the sale.
After that - he is torn on if he should attack the revolving debt first, the student loans, etc.

Before paying down the truck he should get an offer from Carmax or another dealer. The shortage of solid used vehicles and chips for new ones has made used cars way more valuable. He just might get an offer over what he owes or possibly just take it off his hands for an even exchange. The money he saves if he can do this can be applied to other debts. Once he has an offer he knows how much of a gap if any he might need to close so he doesn't spend any more than he needs to on getting out of this.

I would pay off the PLOC and personal loan first. Set aside $5k - $7k for savings. Apply the rest to the credit cards using snowball method to pay them down to AZEO. If the student loans are federal ones with a low interest rate I would get the other debt reduced then use hefty repayment monthly on the student loans.

Re: Family member drowning in debt - help with repayment plan

Anonymalous — Tue, 08 Feb 2022 20:22:31 GMT

At least your brother has good income, the debt isn't too unmanageable, and it sounds like he's taking some of the necessary first steps by looking at downscaling his transportation and moving to a new place.

You've gotten some good advice already, but here's an overview of how I'd handle it. The first step is to cut spending, but remember he should always keep at least a couple thousand on hand in case the new vehicle breaks down or another emergency happens. After that focus on the credit card debt (it almost invariably has the highest interest rate of any debt), and once that's gone, build up a real emergency fund. Typically that's 3-6 months of income, so start with a target of around $25K for someone who makes $100K/year. If the student loan's APR isn't too crazy, there's no need to sacrifice everything to pay it down as quick as possible. Just do the math, and put aside enough money from each paycheck to pay it off in a reasonable time frame. Concurrently with paying down the student loan, I'd also start saving. Since your brother will have already reduced spend to pay off the CC debt, the idea is to keep living below what he can afford, and put the extra money toward more long term goals. Start to increase the emergency fund, and then set aside money for retirement, 529s, or whatever. This should become part of your brother's long term budget, and should set him up well for the future. Pay off the line of credit and personal loan whenever it makes sense, given their interest rates.

Re: Family member drowning in debt - help with repayment plan

Citylights18 — Wed, 09 Feb 2022 01:08:50 GMT

I've been in six figure debt and dug out before. Here is what I would do:

-Shop around on the F150 as used car values are up. Look at autotrader to determine what the most you can get for your mileage nationally and use that as a negotiating point. Perhaps he can get 50k for it somewhere and not sell it at quite the loss.

-At 34k in credit card debt with a 2% minimum payment that comes out to about $680 a month. What I did is put my monthly bills on credit card that I could and just paid the minimum. This way it freed up a few hundred dollars a month to pay off more critcal areas (or higher interest rates).

-Consider a debt consolidation loan to pay your debt. With the 70k left after the pickup you could get a loan that would be enough to cover everything but what you could do is stick it in an interest bearing account such as stablecoins which pay out 10%. In 5 years at 10% interest rate and using the 70k to pay the monthly $680 credit card biill, he would have $64.8k remaining in stablecoins with the compounding value fo money. 12 months of $680k bill equals 8,160 a year going out of the bank account or roughly 11.7%

Calculator:

https://www.calculator.net/interest-calculator.html?cstartingprinciple=70000&cannualaddition=0&cmonthlyaddition=0&cadditionat1=beginning&cinterestrate=10&ccompound=annually&cyears=5&ctaxtrate=0&cinflationrate=11.7&printit=0&x=69&y=15#interestresults

70,000 loan in the bank account will take care of emergencies and plus a downpayment for a house in the future. You would kind of have to commit to it as your finding source and you would want something you could pay off in 12 years or less so you don't have too much interest to pay vs. the 15/20 year terms where you never pay anything off (though lower payment). Maybe that amount he wants to try is 50,000 to be more conservative with it.

Re: Family member drowning in debt - help with repayment plan

Citylights18 — Wed, 09 Feb 2022 01:13:34 GMT

One thing to add I wouldn't be too concerned about a sterling credit score this early in the process if you are planning to rent for 2+ years.

I would be more concerned about having some cash to tap into down the road.

Re: Family member drowning in debt - help with repayment plan

jetsfan2013 — Wed, 09 Feb 2022 17:04:31 GMT

Update...

He is selling the F150 today to a dealer, who offered up 1k higher than Carmax and Carvana did (47.3k). Small deficiency balance but progress.

Re: Family member drowning in debt - help with repayment plan

SouthJamaica — Wed, 09 Feb 2022 19:44:00 GMT

@jetsfan2013 wrote:
Update...

He is selling the F150 today to a dealer, who offered up 1k higher than Carmax and Carvana did (47.3k). Small deficiency balance but progress.

Great news.

Re: Family member drowning in debt - help with repayment plan

nzbgsf — Wed, 09 Feb 2022 22:07:34 GMT

My advice..

Sell the truck and payoff loan from bonus $$

Buy a less expensive vehicle for try to pay cash for it or consider leasing if it makes sense.

Pay down highest interest rate revolving debt first

If eligible.. try to balance transfer high interest cards to 0% promotional rate... or..

Consider a consolidation loan / personal loan to pay off card balances and LOC over 2 - 3 years

Tax refund if available - pay down cards or loans

Possibly refinance student loans and payoff over a few years. Take a look at GradFin or SoFi

Create a realistic monthly budget including debt payments and try to live within means

Consult a financial counselor / planner for guidence on saving & investing for the future