College loans, Credit card debt, health loans, oh my

[Hey Codo]

Howdy Mustachians!

I have a question about my financial situation with College loans! I want to see if I am prioritizing these right! (Recently graduated college - 23 yrs old)

1 - $4387.03 in Credit Card Debt (25% APR) I know...yikes
2 - $3,982.76 in a private student loan (4.25% beginning in December)

My goal is to pay the above two off by Xmas this year. Is that too aggressive?

3 - $12,000 loan I had to take for surgery (monthly payments of $300 with 14% interest)
4 - $33,000 FAFSA student loan (beginning december)

I make 54K pre tax
Rent is $780 locked in for a yr (wish I had lived cheaper)
I also have 2 part time jobs working on the web for hourly that I can make between 600 to 1K extra a month

I have begun to cut down on costs including - eating out, brewskis, partying, electric and water costs, etc.

I have 3 music festivals coming up (1 a month that I have paid for mostly) so I am viewing those as my fun trips, since I will be working most of my weekends on the part time jobs.

Any advice would be greatly appreciated.

Cheers,

Codo

[Catbert]

Yep, kill that credit card debt!  I assume that since you are just starting out you don't get those 0% cc transfer offers that some do.  If I'm wrong and you do then transfer all/some of the cc to a new 0% card.

I'm not sure why you want to pay off your private school loan at 4 1/4% when you have 14% medical bill.  I'd go for the medical bill second, personally. 

If I had debt at 25% (!!!!) there is no way I'd take one vacation this year much less 3 in the next few months.  This is a DEBT EMERGENCY!

[Hey Codo]

Mary,

Thanks for the advice! The school loan is also in my parents name and they want it off, since they were the cosigners.... I also think as a motivator, to have one less loan, would only further my ability to smash all of my debt. This is definitely something I will have to discuss with the rents.

As far as the vacations go, all tickets, travel, and such are already paid for. I did this awhile ago, so there is nothing I can really do other then watch my costs at the events. Rookie mistake in using my CC carelessly.

This month I will be able to pay $1k down on my credit card, which I am thrilled about...it's actually kind of addicting in a way, seeing all that debt number go down.

[corelli]

As a very broad rule with debt, pay the highest interest first.

I would also look into a loan consolidation on that private student loan. Your parents are right to ask you to get it done quickly, but you may be able to consolidate it and release their interest in the note (I am assuming your financial situation has changed since you took it out now that you're making $54K a year) and this might be do-able.)

14% on a medical bill also seems quite high - I would try to give the creditor a call and negotiate. I know a lot of people are really shy to do this, but just be polite, let them know you are/were a student and you have a lot of loans coming do. Worst they can say is no, but they may evaluate your case. I had a friend that had a $7K medical bill completely forgiven simply by stating his case and showing he was struggling.

As for the question of too aggressive... not as long as you can actually live with it.

Good on you for paying down your debts. I just recently payed off a high-interest credit card and a few student loans. Its awesome once you get the shackles off.. and once you pay down one the others just go faster and faster. Good Luck!

[Hey Codo]

Thanks Corelli!

I don't have an emergency fund...which worries me. Should I start one or put every extra dollar to getting that debt down?

[AlmostIndependent]

An emergency fund is good. Start a small one $1k or so to start and put everything else toward the CC debt.

[onehappypanda]

You've got a debt emergency - have you read the MMM posts on debt emergency? They're helpful on putting your situation in perspective.

You are paying a large amount of your income in interest, and interest is wasted money. Fun money, drinking money, etc. are not things you should be "cutting down" on- they should not exist until you've paid down at LEAST the credit card. Seriously, 25% interest is an astronomical amount of money to be throwing away. I would pay the minimum on the other loans while you throw every extra penny you have at that credit card debt - it sounds like you could easily have it paid off in a few months, especially if you adopt much more frugal spending habits.

The situation with the student loan vs. the medical loan sounds tricky for personal reasons. Financially, it's a clear decision, it doesn't make any sense to pay off a loan that isn't collecting interest, and will collect low interest in December, while delaying addition payments on your high-interest medical loan. That said, there's obviously non-financial issues to consider since your parents are involved. Personally, I don't think that it would be reasonable of your parents to expect you to pay it off before it's even due just because they cosigned- when they cosigned, they were trusting you to pay it off on time, not early.  If it were me, I would sit down with my parents and explain that I was choosing to pay off higher-interest debt first while maintaining the minimum payments on that loan, after which I would use all that additional cash flow to pay off the loan asap. That said, I know that a little extra money spent may be worth it for family harmony, so ultimately it's a personal choice based on your relationship with your parents.

Re: emergency fund, I think a small one of $1K or less is good to have around, but I would personally wait until after the CC is paid before putting money toward that. That depends on your personal tolerance for risk, but I've found that most true emergencies can be handled without immediate access to cash if it really comes down to it.

[backyardfeast]

25% is WAY high for a cc.  Do as Corelli suggested with your other loan and call the company to ask politely if there's a way to bring that rate down.  If your history with them is good, they will often do so dramatically.  You can also shop around online for a card with a better rate and then do a balance transfer.  The balance transfers have a fee--usuall 1 %?--but even on a small amount, the difference btween 25% and 10% might pay for the fee quickly.  Don't wait for the 0% flyer to show up in the mail--go find one yourself and call up.  Like Corelli says, the worst they can say is no.

Good luck!

[AlmostIndependent]

You can frequently get 0% with no balance transfer fee if you shop around. If the have one ask them to waive it. It's amazing what you can get when you tell them you'll take your business elsewhere.

[simonsez]

The school loan is also in my parents name and they want it off, since they were the cosigners.... I also think as a motivator, to have one less loan, would only further my ability to smash all of my debt. This is definitely something I will have to discuss with the rents.

Seems like you prefer minimizing/mitigating emotion over optimizing math, which is fine as everyone is different.  Check out Dave Ramsey's methods then if that is what works for you.  Not my cup of tea but it is a plan.  With respect to finances solely, paying down in order of highest interest rates is always the most financially robust (quickest, ceteris paribus) debt repayment method.

Side note: Why are your parents so antsy?  If you are paying what is owed on time, you are only improving their FICO scores and not really harming them in any way (other than the "stress" in their mind).

+1 for the balance transfer research

[Hey Codo]

Thanks everyone for the answers and advice, I really appreciate it.

So my new priorities are paying everything extra I have towards the Credit Card debt. I MIGHT even be able to pay it off in 3 months, which would be fantastic. As far a balance transfer, I'd have to take out a new Credit Card. Is that worth it?

Right now I have that credit card at 25%APR and another one at 14%APR with a 3%transfer rate.

Is it worth it for me to look for a credit card with 0%APR for the first year and a little or no transfer fee?

Thoughts?

Update - I was able to scrape up an extra $312 through savings....after which I paid $240 towards my credit card and $72 towards my sallie mae loan. I'm going to put everything now towards the Credit Card, and hold off on the Sallie Mae loan. My next paycheck, I should be able to put another 1k towards my credit card.

So as it stands those two loans are now at:

Credit Card - $4,171.03
Sallie Mae - $3900.44

[corelli]

Ahhh yes, absolutely try to find a new CC with a low balance. Remember that inquiry will stay on your credit report for ~2 years. It does not have a dramatic impact, but it is something to consider. I personally think it is worth it. 25% is crazypants.

As for your parents, I will make no assumptions as to what they are and aren't willing to do. But the mere fact that you're here tells me they raised someone fairly responsible. If I were you I would perhaps go to them with a budget plan, heck, call it a business proposal and see if you can make the argument that it would be better for you to be able to put as much down on your CC as possible. Show them data etc. If its only the difference of a few months, it might not be a big deal to them. Conversely, they may be mustachians themselves and want their debt eliminated quickly! :) Again, worst case is a "no" but I'd respect a child that came to me with such a proposal.

Good luck!

[AlmostIndependent]

25% is crazypants.

Yes.

[POINTS of ER]

Right now I have that credit card at 25%APR and another one at 14%APR with a 3%transfer rate.

Is it worth it for me to look for a credit card with 0%APR for the first year and a little or no transfer fee?

Thoughts?

It is definitely worth looking for a credit card with 0% APR and little/no transfer fee. I would suggest taking a look at the Slate card from Chase. This card has 0% balance transfer fee (if balance is transferred within 60 days), 0% intro APR for balance transfers (first 15 months), 0% APR intro regular purchases (first 15 months), and on top of that a $0 annual fee. This is the only card that I know of that has no fee for transferring balances. Almost all cards have a minimum of $5 or 3% fee.

For your situation, you can easily knock off a 25% interest debt to 0% (depending on your approved limit) without any fees and then pay minimums up to 15 months. You can aggressively focus on other debts like the 14% medical debt.

As mentioned by corelli, this will post a inquiry onto your credit report and will decrease your credit score. However, if you maintain payments and keep the card for long use then your score should increase. If your looking to apply for a mortgage within the next two years then I would advise against using this method. As inquiries and low credit score will have an affect on your approval rating.