Budgeting Help

[Kree]

Hello,

Perhaps somewhat rashly, I applied for and received a $19,000 debt consolidation loan (20k, with a 1k origination fee). Its 8.99% interest, 3 years, 635.90 payment per month.  Calculation to include the high origination fee, I get about 12.5% interest. Or much lower than my credit cards. But with the short term, I'm feeling like my monthly payment are actually going to go up.

My thoughts.

A, lets gamble. Discover has been good to me in the past with balance transfers. Pay down discover and hope for a balance transfer to get the other accounts consolidated.  That will leave me with only 2 payments, and the lowest possible interest.  Risk: if no BT, then I'm out 200 a month with the loan vs the minimum payments.  But, according to a amortization schedule generator, Even if I start increasing a credit card balance by 200 a month to make my budget work, because the principal payment on the loan is almost 500 the first month, I'm actually still decreasing my actual debt by 300 a month.

B, pay off low balances. Eliminating minimums would put me only 140 behind.  Like before, even if it goes back onto a card, actual debt would go down 360 a month. Additional would be great for the credit score. Might allow me to get a even better loan in the nearish future. Could potentially negotiate lower card APRs due to high score?

C, pay based on interest rates. Eliminating the highest interest rates first will shift my average APR lower. The lower I get my APR, the more of my money that goes to principal instead of interest. Likely to reduce my monthly payments the least. And because it only frees up the most expensive credit, if I needed credit for future emergencies, it would wind back up on the same card.

I owe the following:

capital one Statement Balance 1528.49   Min Payment 49  APR 20.05
Citicard Statement Balance 2507.4 Min Payment 87.30 APR 23.74

Chase Statement Balance 5175.52 Min Payment 122 APR 16.24

Chase Statement Balance 13859.16 Min Payment 378 APR 20.24

Discover Statement Balance 20182.56 Min Payment 397 APR 20.49 for 15k and 17.24 for 5k

I'd appreciate anyones opinions.

Thanks,

[ScoreSizzle]

I always recommend the Dave Ramsey DEBT SNOWBALL. It works and it works very well. Some will argue to pay off the highest interest rate card first, but that's not how Dave says to do it. 

My ex followed Dave's debt snowball to the T and paid off 13K plus her car and paid cash for her sons braces right around a year. 

It's never a good idea to borrow money to pay off money. You're just taking on more debt. 

[sportsguy83]

I'm in a similar situation as you are and I recently paid down $18K worth of debt using option C. It got rid of my super high interest rates and reduced my minimum payments allowing me to throw more money at the remaining debts.  

[TheRedHat]

Need more info.

How much do you have available to pay down your debts? What are the credit limits on each of these cards? Also, what are your minimum payments for each Discover card (you listed them combined)?

[Kree]

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@TheRedHat wrote:

Need more info.

How much do you have available to pay down your debts? What are the credit limits on each of these cards? Also, what are your minimum payments for each Discover card (you listed them combined)?

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I have 19,000 to pay towards debt.

Its one discover card, with two interest rates depending upon the purchase date

capital one limit 2000
Citicard  limit 3000

Chase  limit 5500

Chase  limit 14500

Discover limit 22000

[Tazman81]

A couple of things that popped into my head reading your posting.

• What is your goal?
  • Is it to lower your monthly payment so that your monthly expenses are not higher than your income?
  • Is it to pay the least amount overall in order to get out of debt the fastest?
  • Is it to increase your fico score for some other purchase?
• Can you give Discover a call and ask them if your account has any offers?  Sometimes for longterm customers, they will give you an offer such as what you are looking for as a bit of a "retention" bonus.

In my eyes, depending on what your goal is, then that is where different paths should be taken.  If your goal is to lower your monthly payments and decrease the number of payments being made monthly to 2, then you can also accomplish that by paying off all of the cards except discover so there is no longer a payment due on them.  Saves you on interest, but the monthly payment looks like it would be about the same as where you are current at.

If your goal is to pay the least amount of interest possible (and the monthly payment is less of a concern), then you should make payment on the cards that have an interest rate higher than the loan received.  This will allow you to pay the least amount of money in the long run.

Lastly:  Be sure to ask yourself:  "Why are my balances as high as they are now?"  And be truthful with yourself.  If that issue is not 100% resolved, then DO NOT use funds from a personal loan to shift debt around by paying off your credit cards.  You can end up in a worse place than where you are now.

Here's to hoping that discover has a 0% BT offer for you.  Just remember that they do typically charge a 5% fee; just so you can calculate that into any monthly savings you think may be there.  Good luck, and let us know how it goes.

EDIT:  was just to fix some spacing issues.

[Kree]

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@Tazman81 wrote:

A couple of things that popped into my head reading your posting.

• What is your goal?
  • Is it to lower your monthly payment so that your monthly expenses are not higher than your income?
  • Is it to pay the least amount overall in order to get out of debt the fastest?
  • Is it to increase your fico score for some other purchase?

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I'd say my post was more asking for advice on which goal to pursue.

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@Tazman81 wrote:

• Can you give Discover a call and ask them if your account has any offers?  Sometimes for longterm customers, they will give you an offer such as what you are looking for as a bit of a "retention" bonus.

I just recently got 9 months of 0% interest from them. Wasn't sure they'd give me something else so soon, so didn't ask.

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@Tazman81 wrote:

Lastly:  Be sure to ask yourself:  "Why are my balances as high as they are now?"  And be truthful with yourself.  If that issue is not 100% resolved, then DO NOT use funds from a personal loan to shift debt around by paying off your credit cards.  You can end up in a worse place than where you are now.[emphasis added]

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honestly, I was 10 minutes away from calling a bankruptcy lawyer, when I tried for a consolidation loan as a last ditch effort. Worst that can happen is I go bankrupt in 1-2 years instead

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@Tazman81 wrote:

Here's to hoping that discover has a 0% BT offer for you.  Just remember that they do typically charge a 5% fee; just so you can calculate that into any monthly savings you think may be there.  Good luck, and let us know how it goes.

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Yeah, but 5% is still better than 20%.  I'm leaning towards paying off the C1, Citi, and lower balanced Chase. Will leave me with just enough money left over to pay down the other chase and discover below 68.9%. Should do some good for my credit score.

[Tazman81]

My view is that people considering bankruptcy are usually considering that because their monthly expenses outweigh their income.  Because of this, I would agree with your first assessment to try and pay off cards that will allow you to get to a better place financially from a monthly perspective.  Even though you just came off of the 0% interest, maybe a call to them would not hurt to see if there are any other offers on your account that you may be able to take advantage of.

And then certainly sockdrawer those cards and do not use them...  you are in the paying off phase.  First few months may be hard, but it does get easier as you get a rhythm.  

[tcbofade]

We're happy to help you think and do math... but not knowing your goal makes it a bit challenging.

If it were ME,  I would pay off Capital One, Citi, and the smaller Chase balance, then send $4,000 to the larger Chase balance and the remaining $5790 to Discover. 

It will cost you $137 per month, but you'll pay off three accounts and get the other two under 68.9% individual utilization.... IF they don't CLD you, and both are known for doing just that... be aware.

If they don't lower your credit line, the new reported balances should help your Fico scores immensely which will HOPEFULLY result in better offers down the road.

Can you afford another $137 per month?

Good luck to you!

[mwmiller]

The answer to your question depends on a few factors, such as, Is your goal to get out of debt as quickly as possible? Is your goal to lower your overall payments and thus increase cash flow? Is your goal simply to improve your credit score as quickly as possible in order to better position yourself for a large purchase, such as getting a mortgage for a house?

Personally, I have tried several methods to lower debt. The first step is to establish a workable budget and stick to the budget. Debt payoff is basic: Spend less, earn more and throw all your cash flow at the debt. I have tried Dave Ramsey's snowball, which is created to help "broke" folks who have no discipline. I personally chose not to follow Ramsey's model because the math doesn't work. I paid down debt faster by paying off the highest interest debt first and working my way down the list. (This worked best for me, but I have strong income, I'm very disciplined, and I have an above-average-knowledge of financial principles due to my education and career experience.)

If you need to increase your credit score quickly or make your debt more manageable, I've seen people have great success by consolidating high interest debt and paying it off with a lower interest personal loan. Then you throw all your cash flow to paying down that personal loan. The personal loan also is a different type of loan, so it changes that debt from reporting as revolving credit accounts to one installment loan. That can improve your credit score quickly, while also lowering the high interest debt.

Again, the best strategy for you depends on your situation and your goals.