Author Topic: Advice for paying down debt  (Read 4598 times)

DAY440

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Advice for paying down debt
« on: June 19, 2014, 11:59:51 AM »
I have a student loan debt for 19,000.00.  Since I am a teacher, I have checked on the loan forgiveness program.  However, I do not qualify because I do not teach at a Title 1 school.  That was very disappointing new, to say the least.  My question is should I liquidate some of my stocks in order to pay down some of the debt?  I would really like to get rid of this huge weight of debt but I don't want to shoot myself in the foot either.  Any advice?

A little background.  Several years ago, my husband had to close our business.  What I didn't know was that he had pretty much used up any cash flow we had available to us.  We sold our house, which we could no longer afford, and are currently renting.  I have taken a second job to help cover the expenses.  We also have credit card debt of around $15,000.00.  Another thing I didn't know about.  My fault for not keeping up with what was going on with our finances.  We have cut down on expenses and are now going to cut out cable.  Should have done that first thing!  We pay around $500/month on a BOA card.  The minimum is around $168.00 but we are trying to pay it off.  We have a discover card with around $10,000 on it and are paying around $300.00/month on it.  I just really want to get rid of at least one of these debts and then I would feel like I we were getting somewhere.  At this point, I just feel like we are barely treading water.  What do you all advise?  Both of our cars are paid off. 

Thank you in advance for your consideration!

homeymomma

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Re: Advice for paying down debt
« Reply #1 on: June 19, 2014, 12:16:19 PM »
You sound like a good case study candidate. You should definitely consider posting a full case study.

However, without further information I could only suggest that you target each of your debts in order of interest rate (starting with the highest interest rate). I would guess this would place your student loan at a very low priority because it is likely to have a much lower interest rate than any credit card.

Even this advice makes a lot of assumptions. 1) you are not accruing further debt. 2) you are able to make your minimum payments on every debt. And 3) you and your husband have worked out your finances to the point that trust has been restored and you feel comfortable with your combined finances.

There is lots of further advice to be gleaned from this forum if you are able to share more information. Many have dealt with paying down significant cc debt and will be able to advise on more complicated matters like balance transfers, etc.

dandarc

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Re: Advice for paying down debt
« Reply #2 on: June 19, 2014, 12:25:30 PM »
homeymomma beat me to the punch - I'll just add this:

As far as the question of selling stocks to pay off the debt, that is a solid "maybe" and depends a lot on where the stocks are held.  I would not sell stocks in 401K / IRA to pay down debt as the penalty / tax hit you take is pretty big.  I'd say maybe if the stocks are in a taxable account or are Roth IRA contributions (earnings in the Roth fall under the same problems as 401K / IRA early withdrawals).

 I'd probably wait until you have at least a few months of staying on budget, meaning no new purchases whatsoever on the cards, before I'd make that jump to sell stocks - if you pay the cards off now only to run them up again, you've merely treated the symptom and not the cause, and you're probably in worse shape than if you had just held onto the stocks and paid the debt more slowly.  Gotta build those frugality muscles so you don't fall into the same traps after making the big payments.

viper155

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Re: Advice for paying down debt
« Reply #3 on: June 19, 2014, 01:08:23 PM »
I believe the dave Ramsey approach to paying off debt works best. Smallest to largest regardless of interest rates. You pay all you can on the smallest while paying the minimums on all the rest. When the smallest is gone you move to the next smallest by paying all you can on that plus what you were paying on the first one...and so on.
Many people will argue that this isn't the most efficient way but by gaining traction and making progress you are more inclined to stick with it. And like dave Ramsey says, "if this were about numbers you would not be in this mess in the first place"

bwall

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Re: Advice for paying down debt
« Reply #4 on: June 19, 2014, 01:16:29 PM »
hmm.. .. I think that this is a debt emergency:

http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

Radical action is needed immediately!!

Doomspark

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Re: Advice for paying down debt
« Reply #5 on: June 19, 2014, 01:42:35 PM »
Well...  I'm in a somewhat similar boat to yours.  Having a PLAN is, IMNSHO, a necessity for getting safely to shore.

First thing I did was make a complete inventory of all assets and liabilities.  It's FRIGHTENING to see those unforgiving numbers line up, but it's necessary to see exactly where you are. Make sure there are no outstanding debts that you don't know about - additional credit cards, lines of credit, etc.  Mint is very good for tracking your over-all financial position.

Is your income greater than your current outgo?  If so, pick one of your debts and hammer away at it until it is gone.  Then hammer at the next one, and so on.

Downsize your outgo as much as possible, and put that money into debt reduction.

Get your other half involved in fixing the mess if at all possible.  It's VERY difficult to fight a two-front war. 

A_P_

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Re: Advice for paying down debt
« Reply #6 on: June 19, 2014, 01:52:13 PM »
What are the interest rates on each of the debts?

rugorak

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Re: Advice for paying down debt
« Reply #7 on: June 19, 2014, 01:58:44 PM »
Based on your description I agree with viper155 and Doomspark, pay off your smallest debt first. It sounds like you need the emotional win of having a debt gone. I think bwall is right that this is a debt emergency. But it sounds like you need to remember that in the event of an emergency you must try and keep calm. Get that quick win to remind yourself this is possible and you will do it. But then get back into cutting back as much as you can and paying off everything as fast as you can. I also agree on using mint.com for tracking your finances. I didn't know about it when I was paying off my debts so I just used a spreadsheet. But now I use mint.com to track my growing net worth. It is nice. And also yes, you have to have your husband on board. If he isn't you may end up paddling the boat in opposite directions.

I managed to pay off about 65K of debt in 2 1/2 years making just over 40k a year. And that happened after my divorce so there was just me. You guys have less debt and hopefully more income. You can do it and quickly!

Numbers Man

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Re: Advice for paying down debt
« Reply #8 on: June 19, 2014, 02:06:53 PM »
I'm guessing you are probably paying close to 20% interest on your credit card balances. Liquidate the stock to pay off the $5,000 balance credit card first. Since that will eliminate one required monthly payment. And also allow you to use the funds that you were paying monthly to Bank of America to apply to the Discover balance. If you have more stock then pay off as much Discover card as possible. Use the stock as long as it's not in a retirement account.

greenmimama

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Re: Advice for paying down debt
« Reply #9 on: June 19, 2014, 03:17:29 PM »
Yeah, we can't offer you much more advice without more details.
The obvious answer is cut your lifestyle down to a bare minimum and use the money you are saving to pay down the debt, don't buy anything that you don't actually need, reevaluate every purchase before you make it and choose to put that money on your debt.

I have no idea how fast you can do this because I don't know your income and expenses, but if you are both willing to make sacrifices, I am betting you can knock out your debt faster than you ever thought you could before. Tackle it head on and right away, don't wait!

DAY440

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Re: Advice for paying down debt
« Reply #10 on: June 19, 2014, 03:58:20 PM »
Thanks everyone for the advice!  I will try to get all of my information posted soon.  Unfortunately, my husband seems to be in some sort of denial mode right now.  He has us paying the larger amount on the BOA card but is still charging on it.  Ugh!!  He is doing better than when I first started but has a long way to go.  I'm still working on him! 

Zamboni

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Re: Advice for paying down debt
« Reply #11 on: June 19, 2014, 04:15:40 PM »
^Yes, he is in denial.  You need to cut those credit  cards up except for one, then put that single card inside a mason jar 75% full of water and put in the back of the freezer.  He can use a debit card if he really needs to use plastic for something like a hotel reservation.

I suggest you switch to a debit and cash only system until those cards are paid off. 


darkadams00

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Re: Advice for paying down debt
« Reply #12 on: June 19, 2014, 04:34:39 PM »
Regardless of the financial particulars, your comments highlight two intertwined problems--a) financial and b) marital. Two different financial perspectives in a marriage can cause strain, especially if you are "still working on him!" Defining your perspectives in clear terms--even if they are different now--will eliminate doubt and uncertainty about the "happy place" where each of you would like to live. I think of this as the "Values --> Goals --> Plan --> Action --> Assessment" continuum.  You've already defined your goal for yourself (paying down debt) and are asking about advice for possible Plan and Action ideas. But to get your husband on board, I would suggest starting back at the beginning for both of you--Values. Why do you want to pay down debt? How will reaching that goal help you (and your husband) get to your/his "happy place"? The discussion might seem a bit abstract if you've never had similar conversations before, but the What and How shouldn't precede the Why. They should be complementary.

^Yes, he is in denial. You need to cut those credit  cards up except for one, then put that single card inside a mason jar 75% full of water and put in the back of the freezer.  He can use a debit card if he really needs to use plastic for something like a hotel reservation.

<Bold font is mine>

There has not been a moment in over 20 years of marriage that my wife could have unilaterally done something like this without a thorough discussion and full disclosure of her plans (and mutual agreement). Otherwise, we would have had serious issues immediately thereafter. A strong marriage can survive financial mistakes, medical/job catastrophes, heck, even bankruptcy, and come out on the other side intact. Weaker marriages might fail during such a crisis. However, even a strong marriage can be broken if a spouse forgets about the value of relationship building and focuses solely on financial planning--again, remember your Values and their order in your life.

greaper007

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Re: Advice for paying down debt
« Reply #13 on: June 19, 2014, 04:40:56 PM »
First, my wife's student loans are our absolute highest interest rate, higher even than our mortage.    I think they're at 5.5%.    Whats the interest rate on the cards?     My wife and I have had significantly more money on credit cards than you do and probably had less cash flow.     If the interest rate is above 3%, the first thing you probably need to do is get a balance transfer.

When you look for a balance transfer don't get too excited about the initial rate especially if it's in the 0% category.    Instead, really study two things.    1, how long will they give you at the promotional rate.   The absolute best you can get is for the life of the loan.   It's worth going up to about 5% if you get one of these.  Otherwise, I find that about a year is a decent one and 2 years is great.     2, what's the balance transfer fee?   This is going to added to your debt, so make sure the fee doesn't exceed what you would pay on interest with the current card.   It's best to call the company and see if they can give you the transfer on the card you already have.    You'll have to talk to a manager for this one and it's worth a try.

Once you figure those out, make a hardcore budget and try to pay off the balance transfer within the specified amount of time before the promotional rate ends.   A $15,000 debt transferred to say a 2% card should give you something like $18,000 to pay off.

I don't know what your work/family situation is like, but with a teacher salary and a second job I'm assuming you're making about $35,000-$45,000 a year in addition to your husbands salary.    If he's making at least $20,000 then you could pay off this debt in about one year with a 40% savings rate.

So really, the debt isn't that bad.    Don't listen to the negative nancys on here.    Every successful person has failed, many have had debts north of a million dollars.    As long as you use this as a learning experience and hopefully continue your savings rate (along with a good investment strategy) after you pay off this debt, then this financial setback could be the best thing that ever happened to you.

Good Luck and don't worry, relax and have a home brew.