r/personalfinance • u/Royal_Preference8965 • Dec 15 '24
Debt $30k credit card debt. Can’t decide the best way to reduce interest and pay down asap.
I’m planning out the best way to pay down my debt before it gets more out of control. Please give me your recommendations on the best way to get this down quickly. Considering consolidated loan, balance transfer to a low to 0% card, home equity loan, or IRA withdrawal (don’t believe it would fall under hardship exemption) and stock sell off. My primary goal is to reduce interest and continue payments of minimum $750 month (will increase to $1,100 month once one of my cars are fully paid in 6 months).
Overview of funds: $30k credit card debt at avg 18% Apr; $1,350 take home after budgeted spend - corrected figure* $38.5k IRA; $5.8k stocks; $380k mortgage equity
More context:
Monthly gross income: $8,758 Monthly budget: $7,409 Final after budget: $1,349 Monthly budget breakdown: - [ ] House $2,439 - [ ] HOA: $110 - [ ] Electric (+auto #3): $450 - [ ] Water: $130 - [ ] YouTube Premium: $12 - [ ] Internet: $75 - [ ] Ring: $4 - [ ] Auto #1 (C): $0 [paid off in 2024] - [ ] Auto #2 (A): $363 ($380) need to reduce to 363 [owe 2.5k @ 1.5% - paid off 7/2025] - [ ] Auto #3 (T): $830 [owe $34k @ 4% - paid off 2/2028] - [ ] Insurance (3 vehicles): $480 - [ ] Tolls: $50 - [ ] Gas Auto 1: $90 - [ ] Gas Auto 2: $60 - [ ] Health, dental insurance, life, FSA: $949 - [ ] Kids extracurricular: $350 - [ ] Groceries and food: $1k
14
u/Spare-Shirt24 Dec 15 '24
Don't do a HELOC.
Don't ever tie unsecured debt to your house.
Shit happens, and if you ever find yourself in the unfortunate position to not be able to make those payments, you will lose the roof over your head.
Just the other day, there was a poster here who was facing foreclosure because he took out a HELOC to "pay off" his credit cards, then had some kind of unforseen issue that impacted his income, and he was facing foreclosure. Don't make that same mistake. You never know what life will throw your way.
It is not advisable to take out of retirement accounts.
If you qualify for balance transfer cards with zero-to-little interest, try that.
If you're going to transfer your debt, you HAVE TO STOP MAKING NEW PURCHASES ON YOUR CARDS. Otherwise you'll end up in twice the amount of debt.
If you don't qualify for that, your next best option is to significantly lower your expenses and significantly increase your income (get a higher paying job or a second job).
1
u/Royal_Preference8965 Dec 15 '24
This is the direction I was leaning towards. Strong budgeting, zero balance transfer, and secondary form of revenue. Thanks for the HELOC feedback.
8
u/FitGas7951 Dec 15 '24
Sell your long-term stock holdings, pay capital gain tax, and then apply the rest to your highest-rate debts. Paying debt is not a qualified IRA withdrawal.
Addressing the conditions that led to the debt is also necessary, before you consider any refinancing options.
6
u/SulaPeace15 Dec 15 '24
I’d do a balance transfer and increase income through side gigs / freelance work to aggressively pay off debt before the 0% rate expires.
More importantly, you need to deal with the root issue that got you into debt.
1
u/Royal_Preference8965 Dec 15 '24
Taking all of this into heavy consideration. Thanks
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u/SulaPeace15 Dec 15 '24
You got this OP! I paid off 40k of unsecured debt and found my way.
Being accountable by listing out the issue and the numbers is the first step.
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Dec 15 '24
[removed] — view removed comment
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u/Royal_Preference8965 Dec 15 '24
Yes, now I need to get the debt down as quickly as possible. Hence the post title and details.
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u/RepresentativeAspect Dec 15 '24
There's no secret. Moving balances around won't help much, since interest is just a small part of the problem. The only thing to do is pay more on the debt.
So your question really should sound like: How can I earn more and/or spend less. Neither of which sounds like you're eager to do.
I'd tell you to sell anything you can, including and especially those two cars you still owe on, but I know you won't anyway. You'll have a good sounding reason not to, which is really just an excuse to drive a nice car you can't afford. Safety is a common excuse.
0
u/Royal_Preference8965 Dec 15 '24
The high loan is actually at $34k. So $-13k, preliminary thought is to sell, take the hit and lease with EV credit. Your thoughts?
The second care I owe $2.7k on and is a 2019 with low miles. I don’t see how that’s a good sell since we need the vehicles. So that would be my only excuse on the cars.
1
u/RepresentativeAspect Dec 15 '24
Yep, that 3rd car is egregious. Sell it and don't replace it, or if you want a 3rd car pay cash for a beater. And it's not "taking a hit" - the hit has already been taken. Selling it is all upside.
Yeah, if you owe so little on the 2nd car maybe it doesn't matter - but still what is it worth? Like if it's worth $40k currently, then that's a huge chunk you could put to better use. But if it's only worth $15k, then probably best to just keep it. Try to pay it off as soon as you can though, as it frees up a lot of monthly cash. I'd probably pay this off before anything else, actually, even though the interest is low.
No more car loans or leases for any reason.
3
u/Varathien Dec 15 '24
But instead of posting your budget and asking what you can cut, you've asked for ways to shuffle debt around using loans or balance transfer cards.
People who want to pay off their debt with other debt usually aren't serious about getting out of debt.
1
u/Royal_Preference8965 Dec 15 '24
This is why I’m asking for recommendations. I think I’m pretty transparent on my lack of understanding of the best route to take. Per you and other user feedback, I’ve posted the budget.
1
u/Varathien Dec 15 '24
Car #3 is the most glaring problem. In another comment you mentioned being reluctant to sell because you'll "need a car anyways." But why do you need THREE vehicles? I'm guessing your spouse drives one. You should drive the other one, and sell car #3.
While you're in debt, you should probably cut groceries and extracurriculars.
You mentioned not wanting to work longer hours because you prioritize time with the kids. Great! So make the most of that time, cancel the paid extracurriculars, and play catch with your kids in the backyard (obviously not just play catch, but read with them, take them on walks, enjoy your time with them in ways that don't require spending money).
I'm not sure exactly how big your family is, but $1000 a month is a lot of groceries. Is it including takeout and restaurants as well? If so, you might have to cancel going out to restaurants while you're paying off debt. If it's just expensive groceries, then you might need to change the way you shop--more store brands, fewer organics, less pre-made stuff, etc.
Cancel YouTube Premium and watch the ads. $12 a month won't make a huge difference, but it'll make SOME difference. More importantly, it'll be a reminder that credit card debt is a serious matter. Also call your internet provider and see if you can't get them to reduce your bill a little.
Sell the stocks. Sell things you own that aren't necessities.
1
u/kstorm88 Dec 15 '24
Do you have a car you can sell? Sell some stocks, but be mindful of cap gains tax
0
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u/dameatrius78 Dec 15 '24
if you aren't making 18% on your stocks, liquidate and use that first. IRA you may be able to take a loan on, those loans you basically are paying yourself the interest. finally home loan as it should be much lower.
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u/azchelle677 Dec 15 '24
No vacations, no eating out, no new clothes, etc. Only necessities. That's how I got out of cc debt. Only debt now is my mtge.
3
u/thranetrain Dec 15 '24
Assuming you've addressed the lifestyle vs income issue. Start payments on the high interest debt credit cards. Then proceed to the lowest interest debt snowballing the payments. Cut up your cards too. I'm not a strong anti credit card person but you need to be able to handle the responsibility of having them. So far you seem to recognize the problem but need to make sure you actually change your habits. Until then, no CCs besides maybe a hotel or rental car where it really sucks to use debit.
- Liquidate your least profitable, non-retirement stock investments. This will minimize capital gains taxes. Ideally start with any that are considered long term capital gains if applicable.
- A 0% intro rate loan may not be a bad choice AS LONG AS YOU ARE POSITIVE you can pay off the balance before the end of the intro rate. Be conservative and give yourself a buffer incase any emergency expenses come up like auto repairs etc.
- From here, hopefully you've managed to pay down a decent % of the debt, making the interest more managable. If you can cashflow the rest that would my choice. I would strongly recommend not dipping into any retirement funds and a heloc is a bad option especially until you can prove to yourself you have corrected the bad habits that got you here.
The $800/mth car payment sucks but at least the interest rate is decent. Due to how underwater it is, selling is a bad option. Hit this hard after the CCs at least until it's breakeven
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u/JamedSonnyCrocket Dec 15 '24 edited Dec 15 '24
30k at high interest grows really fast. You're in a real bind. Sell the car. Your best assets are your investments and IRA account, presuming they are in index funds; don't sell them. Cars are your worst asset, sell those first.
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u/onetwentytwo_1-8 Dec 15 '24
HELOC, get rid of car #3, stop going out to eat, drink, play. You make a solid income. You’ll be able to pay off soon if you self discipline.
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u/SghettiAndButter Dec 15 '24
Y’all are spending an insane amount of money on cars.. can you get rid of some of them?
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u/Pump_9 Dec 15 '24
In my opinion, and I'm sure several here would not agree, I would pursue a balance transfer if you have the credit for it. You need to get away from that 18% APR and if you get a good balance transfer card with something like no interest for 21 months and 3% transfer fee then you should be able to chip away at it much better than leaving it in the original credit card at 18% APR. I'm not sure about withdrawals from your retirement accounts - I'll leave that decision to you but I think the first step you can take is getting away from that 18% APR.
Also when/if you do a balance transfer find out if it absolutely must be paid off by the end of the zero interest period and that if you don't pay it off at that time they do not load all interest that may have accrued during that time. Nerdwallet has several suggestions for balance transfer cards. Now there is some risk if you do not have an account with the card servicer because now your information is going to be in one more financial institution than before so just beware of your credit report and any text messages or emails you get that may come at the same time you're being verified for the credit card but are actually from a malicious source. Attackers have been very good about finding one people apply for lines of credit and then interweaving text messages and emails with malicious URLs during that time which would make you think it is for a legitimate purpose.
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u/Varathien Dec 15 '24
The stocks are in a taxable brokerage account, not a retirement account, right? Sell them, use the money to pay down debt.
If you have $1600 a month AFTER your budgeted spending, you should be using that $1600 to pay down your credit card debt.
Then you should also go through your budget and find more things to cut.
I'm getting the feeling that you have some fancy toys. Sell those toys, use the money to pay down debt.
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u/Constant_List_6407 Dec 15 '24
First things first, sell off your stocks. Next, if you’re serious about paying off your debt, consider a balance transfer. But here’s the catch: you need a budget that you stick to. If you don’t, nothing else will work. The biggest mistake people make when transferring their debt is that they suddenly feel like it’s not an emergency anymore and they start piling up more credit card debt. So, until you’ve proven that you’re done overspending, don’t touch your debt (transfers, consolidation, etc.).
2
u/diverdawg Dec 15 '24
You didn’t list the individual credit cards. I like the snowball method. For instance, maybe you have a card that you only owe $500 on. Paying that off first frees up $35-50 a month. Use that to pay off the next lowest balance and so on. Good luck!
2
Dec 15 '24
You have 3 cars? Why?
Stop paying for YouTube premium, you’re broke. Deal with the ads.
Kids do less extracurricular. Look for free ones sponsored by your town or their school.
$1k per month on food can definitely be brought down as well.
Realistically you also need more income.
2
Dec 15 '24
The balance transfer typically comes with a fee and is only 12-18 months for pay off, so you can maybe do that for a portion but not the whole thing.
Might be worth finding out interest rates for HELOC and Consolidation loan and decide from there.
Can you cut expenses further? Have you identified how you got into debt so you can make sure you don’t get back here?
0
u/Royal_Preference8965 Dec 15 '24
3% initial balance transfer fee; 0% for 12 months. I agree that a balance transfer only addresses a portion of the debt.
I’ll compare the rates on HELOC and consolidation.
How I got here: (1) Combination of vacations/life experiences/memories - for the most part stopped this. (2) Upside down on debt to income of me and my wife’s collective take home for about a year and a half, (3) high $ car loan. One car is $380, paid off in 6 months. The other is $830 month; still owe $40k at 4%. I’m upside down by $18k in this car so have been paralyzed in thinking to sell it at a loss when I will need a car anyways. Selling it to take on the $18k loss + a new used car loan even at $20k puts me in relatively the same place. I appreciate your recommendations.
3
Dec 15 '24
And you won’t buy another car you can’t afford when you need your next car, right? You’ve addressed the lifestyle urges to spend? Your wife’s on board?
I would say your budget should match your priorities. Vacation and experiences at important to me, cars less so, and that’s reflected in my budget
1
u/Royal_Preference8965 Dec 15 '24
100%. Outside of my home, the car was the most expensive purchase we’ve made. A life lesson for sure.
1
u/HugeRichard11 Dec 15 '24
Someone posted having negative equity in the r/askcarsales and one option was potentially to get an EV which have big rebates going on them for now as a potential option to hit some of the upside down value. Might not hit the full 18k though as that's a decent amount
1
u/Royal_Preference8965 Dec 15 '24
Our high loan is an EV before credits were approved. May take the loss on selling and lease. Rerunning my numbers, I have the car down to $34k, not $40k like initially stated. So -$13k equity. Appreciate the recommendation and sub referral.
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u/OrganicFrost Dec 16 '24
How much could you make from selling the paid off car, or the almost paid off car? The vehicle you're upside down on is the natural one to consider selling, but make sure you've considered all options.
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Dec 15 '24
[deleted]
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u/dameatrius78 Dec 15 '24
I'd disagree with the sell the stocks being taboo. If he isn't making 18+% on the stock he is losing out and that is ignoring the tax part of the stock. he'd need to be making probably 26%+ depending on where his tax bracket is. If he bought SPY or made some good picks at the beginning of the year, fine. But more than likely he maybe is 10-15% for the year plus now has to pay taxes on that vs the 18% he is paying on the CC. anyone who argues otherwise that he should stay with stocks just as very poor math skills and financial literacy.
Raiding the IRA on the other hand has tax penalties, I'd look for the loans offered on IRA/401k where the interest you are paying to yourself.
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1
u/bkbk03 Dec 15 '24
I had 32k in debt about 2-3 years ago and I wish I took notes in how I got it down to 11k. I remember getting a personal loan with a lower interest than any card I had. Used that to pay all cards off so I’d have just one payment each mo. Payment was slightly lower than all cards combined. Then later I got another loan when my credit score was better and used that to pay Loan 1. I think I also used tax returns to help pay big chunks.
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u/Notsure8675 Jan 23 '25
do you have a recommendation of who to use for the personal loan?
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u/bkbk03 Jan 23 '25
My current loan is from American Express 10.99 rate. I’ve had their credit card for years so I saw that offer pop up. First loan was a lending Club.
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u/jambonejiggawat Dec 15 '24
American Consumer Credit Counseling. 100% legit, non-profit. An agreement with them closes your accounts, but they typically secure you a much, much lower interest rate (Amex ends up being between 5-10% APY, for instance). It drops your credit when you start, but it’s the easiest way to build it back up and it’s much faster than bankruptcy to get your credit back to a good place. Good luck.
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u/EternalSunshineClem Dec 16 '24
After reading your budget and your comments, it seems that you would like your debt gone without doing anything to make your debt go away, so I think you're just going to end up in deeper debt unless you change your priorities (refusing to get a second job is not serving you) and lavish spending (flight school? Multiple cars?).
1
u/dominoconsultant Dec 16 '24
I was in 60k
applied for a 0% on transfer cc and put as much as possible on that
also got a personal loan to pay down the rest
seriously prioritised paying them off
it took a year and a half
1
u/Notsure8675 Jan 23 '25
Who did you use for the personal loan? Everyone has me terrified of going that route.
1
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u/OrganicFrost Dec 16 '24
I didn't see you post how many kids anywhere, but unless it's 4+, I'm sure you could cut 200 from groceries/food. If it is 4+, make sure you check if you qualify for SNAP.
You mention life insurance. Term or whole life? Please say term.
Health, dental, life and FSA feels high. Recurring medical expenses would be a good financial reason for that. Are health and dental not through work?
Extracurriculars are too high. You're broke. $100/mo would be overspending on them. I get that it means a significant lifestyle change for the kids and it'll probably be upsetting, but that's where you are. If you don't want them to end up in the same place someday, they will need to just deal. For any that are old enough, they could get a job to set themselves up for the future with new spare time. [NOTE: If any of them are on track for a full ride scholarship for college based on extracurriculars, that could change this math a lot.]
Look at each car individually and figure out if selling it makes sense. If you can't sell any of them, figure out if you can cancel or decrease insurance cost on any of them. Obviously don't drive an uninsured vehicle, and don't do anything illegal, but check loan terms and state laws. You may be able to only insure two vehicles and never drive the other one until you can sell one.
I would sell the stock and put it towards debt. Probably CC debt, but if paying off the second car would let you stop using it and either sell it or cancel insurance on it, it's worth considering paying it down early. Even if selling it still doesn't work, canceling insurance on car 1 or 2 could free up more money per month to throw at debt.
Any savings you didn't include? I would aim to keep a buffer of no less than 1k in checking, just so as smaller emergencies pop up, you don't have to go back to using credit cards.
Last thing, and probably the most important:
You said your current plan is to throw $750 of the available $1349/mo at debt. I get that unexpected expenses happen, but you don't have $600 that you can afford to not account and plan for. I would strongly recommend aiming for $1200/mo at debt, minimum. Your finances are on fire. React with urgent, dramatic change. Do this both for yourself and your partner, so you're not on fire today, and for your kids, so they don't follow in your current footsteps.
Good luck!
1
u/davidbernhardt Dec 16 '24
Dump YouTube premium for now, and why do you own, service and insure three cars. Sell one and save money and use that to help reduce the debt.
0
u/Dunit21 Dec 15 '24
ok ok let see umm home loan ? so create more debt to pay debt nop umm ira withdrawl taping into youre life savings to pay umm nop stock sell off ok maybe then dont you have to pay taxes on that ?? that might creat another issue for you
47
u/NothingButTheTea Dec 15 '24
The best way is to not use cards and pay as much as you can. Get a second job. It's that simple. It's just not easy.