The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: diesel on May 24, 2018, 06:00:32 AM
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Hi All,
I am helping a friend deal with some credit card debt and I wanted to see if I could get some others to weigh in. We have already discussed the dangers of credit transfers and he has locked away the cards. We are repairing passed mistakes.
Here is the situation:
He had a balance on 2 credit cards (~10k combined)
He transferred all he could to a card with 0% apr for the first 12-15 months. (his total balance was too high to transfer all to one card)
That leaves the following balances:
Card 1 - $4750, 0%apr (12 months)
Card 2 - $4966, 20%apr
I am currently weighing 3 options and would like some input. Here are the options (in no particular order)
1: Pay the minimum on the 0% card and throw all money at the high interest card until it is paid off - then shift to the 0% card.
2: Look into SoFi or a company like it to get a lower interest loan to payoff the high interest card, pay that loan off while paying the minimum on the 0% card - then shift to the 0% card.
3: Open another 0% card, transfer the high interest debt to that, then attack the 0% cards. (snowball style)
Thanks in advance for the help!
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3 is better than 2 is better than 1.
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It's great you are helping your friend with this!
The most optimal solution would be to pay as little interest as possible, therefore open another credit card with a no fee balance transfer offer. Some great options:
https://cards.barclaycardus.com/cards/barclaycard-ring-mastercard.html
https://creditcards.chase.com/balance-transfer-credit-cards/chase-slate?CELL=6TKV&SP4R=FH24R8
https://www.bankofamerica.com/credit-cards/products/bankamericard-credit-card/
If that fails, a personal loan would also be a good option. Even a 5-7% interest rate would be better than 20%!
Note: watch out for balance transfers that are "interest deferred", meaning he will get hit with all the back interest if the balance is not paid by the 0% offer expiration date. I did not have this issue, but make sure you read the fine print!
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I vote Option 1!
I don't love the idea of him opening any more cards to solve this problem. People with credit card issues definitely don't need more cards in their possession. I say cut all unnecessary spending until all is paid off. Go minimums on 0% and any excess onto 20%. If income is a problem, he needs a second job in this scenario. Best of luck to your friend!
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How much can your friend "throw at this" per month?
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How much can your friend "throw at this" per month?
This is a missing variable. Right now, he's paying about $80/mo for the privilege of keeping the balance (at 20%). If he's paying off $1k/mo, that won't really hold him back, and could motivate him. If he's only paying $200/mo, interest will eat up over a third his payment and noticeably slow his progress. Then it would make sense (imo) to take the risk of enabling to reduce or lower the interest.
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How much money does he make? I'd go scorched earth and not spend one penny on anything other than the most basic food available, and a roof over my head. And side gigs like crazy. Overtime at work if possible, and if not, second job or day labour. This sounds like a great time to become a minimalist and sell shit off as well.
I'll be in the minority and say not to bother with any funny money-shuffling business, and just go scorched-earth on that shit. If he works pretty much every waking hour and doesn't spend anything, plus sells some stuff, that's going to be gone really fast.
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3.5;
Open another 0% card, transfer the high interest debt to that...
Note that you/he can't transfer from a CITI (for example) card/account to another CITI card for these teaser rates.
Track the details like a hawk. Esp. when the 0% rates end. Adjust the strategy accordingly.
Keep card 2 open, but don't use it!
Pay the minimum (rounded to the next whole dollar) on card 3 (the new one).
Pay all possible on card 1.
When card 1 is paid off, pay all possible on card 3.
Keep card 1 open.
This is what I did when I found myself deep in sudden debt from divorce. It took a few yrs and a few cards.
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X2 option #1
Friend needs to stop spending except for essentials (home, food, medical) & pour every single cent towards that 20% card. Pay minimum on 0% until high interet loan is paid than redirect. It takes discipline. I dug out of 45k plus in debt so my experience, strength & hope includes keeping a daily spending journal that includes every single cent spent & every single cent that comes in. I also sold alot of my possessions, worked side gigs, cut phone, gym, haircuts, etc. There is no free lunch. Also finding out why I overspent was extremely helpful in order to develop new money habits & change my lifestyle. Now am FIREd no debt anchors it can be freeing if your friend is honest, open, and willing. HOW. Nice you are a helpful friend setting a positive example. Good luck.
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