Author Topic: Need some badasses help! Options for dealing with medium sized debt.  (Read 3443 times)

shieatt007

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Hey guys,

Long time reader, first-time poster - thanks for having me on here! I have a quick question Iím hoping one of you financial bad-asses might be able to help me with. Iím 31 and have amassed a bit of debt; itís not a life-ending amount, but itís enough to have affected my credit and start causing me some headaches. What has truly screwed me was a tax mistake I made from 2013. In addition, I also have a medical bill that is in collections from a shoulder surgery I had last year that is affecting my credit score (currently 644 from CK). Iíve since started to budget and watch my money much closer and follow advice from this blog and forum, but would really like to clean-up what I owe. What options should I explore and should I potentially obtain a personal consolidation loan with a low APR that will help me pay off what is owed immediately. My debt is outlined below:

Immediate Concern: $15,700
In Collections from shoulder surgery - $3000 w/ high interest
Credit Card Debt - $4,700 (Chase Sapphire)

Fed Back Taxes owed : $4000 w/ high interest
State Back Taxes owed: $2417 w/ high interest

Medium Concern Total: $2800
CMRE Bill: $1200
Loan from friend: $1600

Long-Term Concern Total: $6678
FFEL: Subsidized Stafford Student Loan: $3060 - (5.75% Fixed)
FFEL: UnSubsidized Stafford Student Loan: $1283 - (6.55% Fixed)
Student Stafford Loan - $2335 (6.8% Fixed)

My credit sits at around 644 according to Credit Karma, and I would obviously like to build this back as soon as I can. Would you recommend paying the monthly's on these debts or move to a consolidation loan? It would be amazing to pay (some or all) these off and have a simple monthly debit to pay this all off while keeping my credit in check.

What is the best strategy here? Not sure if getting a Consolidation loan would hurt my credit even more?  Or if any loan company would even give me a loan with my credit?  If any of you badasses know the best approach here, I would be forever grateful!!

Thank you!


Sandia

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #1 on: October 23, 2017, 06:44:07 PM »
It's difficult to give advice without more information - you can't dig yourself out of the hole until you know how big your shovel is.

I suggest posting a case study and/or editing your original post to include the following:
- income (how big is your shovel?)
- minimum payments AND exact interest rates for each debt (how big is the hole?)
- (critical) a full, true reckoning of your expenses (how can you make your shovel bigger?)

If you haven't been tracking how you spend your money each month, start immediately. Use whatever method works for you; some here like YNAB or other software, I use an excel spreadsheet, some even go for pen and paper.

Then the pros here can talk to you about snowball/Dave Ramsey/etc and argue over the mathematical vs emotional optimal solutions.

MDM

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #2 on: October 23, 2017, 07:31:05 PM »
It's difficult to give advice without more information....
+1

OP, it's probably also worth downloading this Debt Reduction Calculator so you can determine the cost of different repayment options for yourself.

Laura33

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #3 on: October 23, 2017, 08:17:27 PM »
The only way to fix your debt problem is to cut your spending.  Fixing debt with more debt is just a quick fix, and then you go back to the overspending that got you in this problem in the first place.*

I suggest you post a case study with your income and spending and debts all in one place; there are a lot of people here who can find places you can cut costs.

*Why do I say overspending, when the debt is stuff like a tax screwup?  Because if you weren't overspending, you'd have had savings to cover the tax screwup and wouldn't still be on a payment plan four years later.  And because it's six problem debts not even counting school loans.  This isn't a one-time oops; it's a recurring theme.

AMandM

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #4 on: October 24, 2017, 01:21:57 PM »
Would you recommend paying the monthly's on these debts or move to a consolidation loan?

These are not the only two options.  To get out of debt, your best bet bet is to pay *more* than the monthly payment. To do that, echoing what Laura said, you will have to cut your spending.

There are two schools of thought on which debts to pay off first.  Logically, paying off the higher-interest debts first will save you the most money in the long run.  On the other hand, psychologically it may be easier to stay motivated if you pay off the smaller debts first, so that you can get the feeling of progress from killing off some of the debts altogether.

Wayward

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #5 on: October 25, 2017, 08:47:46 AM »
Before you even consider consolidating, I would suggest taking a step back and reading Your Money or Your Life and start tracking ALL of your spending immediately (notepad, Excel, Mint/Personal Capital. Find what works for you).  I agree with Laura33 that this doesnít seem like a one-time mistake and that you need to get a better handle on your financial situation, e.g. spending vs. saving.

I also have debt, mostly student loans, so from personal experience I have learned the fastest way to eliminate debt is to cut spending and earn more money.  It may seem hard at first to cut out luxuries like gym, expensive hobbies, eating out, going to bars/clubs/concerts, etc., but this is an emergency and in the long run you will be grateful for these short-term sacrifices.  Look for ways to optimize; the biggest areas for improvement are housing, food, and transportation for many people.  Can you move in with a roommate? Can you lower food costs by shopping at Aldi/Costco/etc?  Can you get a side job, higher paying job, or get more hours at your main job?   

Step 1: Get your spending under control and start setting aside some money each month for an emergency fund if you donít have one (even if itís only $50 per paycheck or per month to an Ally savings account).  Use the extra cash flow to attack the debt full force, in my opinion the shoulder surgery, back taxes, and loan from friend* debts should go first.  Credit utilization ratio greatly impacts score, therefore once these debts decrease your credit score should increase. 

Step 2: After the first group of debts is eliminated check out: https://www.creditcards.com/compare/balance-transfer/?aid=9a0b93fb&ZID=01101101 for great credit card offers, preferably one with a no or low fee 0% interest balance transfer, if possible.  Most require a 670 or higher credit score, which you should reach in no time if you take action now.  The balance of the Sapphire card and CMRE bill could go here, but you have to promise not to put any new purchases here!  Figure out your minimum payment per month to pay the balance off within the 0% time frame (balance / # months). 

Step 3: Look into refinancing your student loans with SoFi or Earnest.  Checking if you are eligible should not impact your credit score (you want to make sure you donít have too many credit inquiries as that could lower your score).

Itís up to you to choose the Snowball, Avalanche, or Hybrid method, but make a plan of attack and stick with it.  Use a free calculator such as Undebt.it to play around with the best method for you.  Also, post a Case Study for more in depth advice! 

*Some people may not agree with me, but a kind friend willing to help you out in a time of need is not one you want to lose over money.  Appreciate the hell out of this person and let them know how much their help means to you.

Hope this helps and good luck!

shieatt007

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #6 on: November 28, 2017, 05:17:45 PM »
Hey guys,

Thanks so much for the above advice. My spending is clearly my biggest problem; I've began to address this by getting a roommate and sticking to a budget - but I still have a ways to go.  Before finalizing a strategy, I wanted to first take the original commenters advice and add some extra details about my income, spending, and interest rates of each of the debts below - in order to know how 'how big my shovel is.'  If possible, could you let me know if these details provide any further insight to my situation and might possibly affect the above strategies?  Again, at the risk of this seeming like a double-post, I was originally interested in exploring the idea of a low APR loan loan that would:

  • Help pay-off what I owe immediately and avoid the heavy interest
  • Help my Credit Score

BUT, based on the badass comments above, it sounds like there is a more effective 'hybrid' strategy I should follow here. Let me know if the added details below might inform a debt strategy any further.

Updated Debt outline w/ Income:

Immediate Concern: $14,192
In Collections from shoulder surgery - $3,000 (20% interest) - MONTHLY: $100
Credit Card Debt - $4,800 (Chase Sapphire) - (16.99% APR) - MONTHLY: $145

Fed Taxes owed : $4,075 (4% interest) - MONTHLY: $150
   ^ this will go down to a little over ~$1,500 after I file taxes in Jan 2018
State Taxes owed: $2317 w/ high interest - MONTHLY: $100
   ^ this will go down to a little over ~$1,600 after I file taxes in Jan 2018

Medium Concern Total: $1,200
CMRE Bill: $1,200

Long-Term Concern Total: $6,568
FFEL: Subsidized Stafford Student Loan: $3,012 - (5.75% Fixed) - MONTHLY: $63.00
FFEL: UnSubsidized Stafford Student Loan: $1,263 - (6.55% Fixed): MONTHLY: $30.00
^
Student Stafford Loan - $2,293 (6.8% Fixed) - MONTHLY: $54.00

MY INCOME
Income: $4,086 a month (after tax)
Spending: ~ $3740 (includes above monthlies)
Leftover = ~ $346


Again, It seems to me that if I moved this debt over to a low APR loan or CC, this would immediately remove my Collections amount and allow me to pay down my Chase CC debt, leaving me with a low monthly payment that I can raise as I increase my income. Then again, not sure how getting this loan would affect my credit, or if this strategy is just not worth pursuing.  The low APR CC along with raising my monthlies sounds like a good bet, wanted to double-check here with you.

Regardless, my main focus now is reducing my spending as much as possible and moving this saved money into the high APR debts ASAP. If there is any other insight or advice out there, I'm all ears!!

Sorry for a repetitive post, but I just wanted to make sure all pertinent information is available before moving forward.

Thank you again, hopefully there's a way I can repay the favor to each of you down the road :-)

« Last Edit: November 28, 2017, 05:29:04 PM by shieatt007 »

rpr

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #7 on: November 28, 2017, 05:26:04 PM »

MY INCOME
Income: $4,086 a month (after tax)
Spending: ~ $3390
Leftover = ~ $696


Does your spending listed above include the MIN payments listed for the various loans (roughly $650)?

shieatt007

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #8 on: November 28, 2017, 05:30:16 PM »
Darn, it only included a few, my apologies. It has now been fixed!

MY INCOME
Income: $4,086 a month (after tax)
Spending: ~ $3740 (includes above monthlies)
Leftover = ~ $346

rpr

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #9 on: November 28, 2017, 05:34:42 PM »
Darn, it only included a few, my apologies. It has now been fixed!

MY INCOME
Income: $4,086 a month (after tax)
Spending: ~ $3740 (includes above monthlies)
Leftover = ~ $346
Download and use the calculator linked to by MDM from the earlier post. This will work best once you have all of the interest rates. Also, have you saved enough to pay the taxes due in Jan 2018?
« Last Edit: November 28, 2017, 05:40:17 PM by rpr »

Wayward

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #10 on: November 29, 2017, 08:37:05 AM »
Congratulations on getting a roommate and taking back control of your life!  Personally, I did do a balance transfer with a no fee, 0% interest for 12 months offer to give myself some breathing room, but my credit score is over 740Ö I do believe in paying as little interest as possible. 

I still feel in your situation it would be best to cut spending, increase income, throw all extra at the debt, and work on rebuilding your credit.  If you could cut your spending down to $2,000 per month + the minimums (~$642) you would have an extra $1,444 per month to throw at the shoulder surgery and eliminate it within a couple months with no hit to your credit from a consolidation loan! 

But, it seems like you really want to get a consolidation loan.  Interest rates are on the rise and many companies charge an origination fee on the loan balance, which means the money you would save in interest is just being paid up front in fees so do the math before deciding!  Check out this article, make sure to find the right company, and read the fine print: https://studentloanhero.com/featured/personal-loans-fair-credit/

Either way, please donít be discouraged!  It took time to get into debt and it will take time to get out of it.  Once you track your spending for 2-3 months I suggest you post a detailed Case Study so we can help you find more ways to cut spending :)  Also, selling unused items around the house helped me get some quick cash!

NoStacheOhio

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #11 on: November 29, 2017, 08:47:41 AM »
In Collections from shoulder surgery - $3,000 (20% interest) - MONTHLY: $100

I fully understand it doesn't help now, but in all likelihood this was a completely avoidable situation. Hospitals will generally work with you if you call (or go in person to one of their financial navigators/counselors) and explain that you want to pay your bill, but aren't able to do so in one payment. They'll put you on a payment plan that doesn't go to collections and won't show up on your credit report. Possibly at 0% interest, definitely less than 20%. They may also be willing to decrease the amount. This never should've gone to collections, especially for what was presumably a smallish (under $5,000) bill to begin with. Is the CMRE bill related to this? Did you pay someone to deal with this bill?

It looks like you are, but just to make sure, are you on a payment plan with the IRS and your state tax authority?

Laura33

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #12 on: November 29, 2017, 09:08:22 AM »
First, if you have debt in collections and a low credit score, I doubt it is likely that you will be able to consolidate it at a reasonable cost.  Have you researched what options are out there?

Second, don't worry about how a consolidation loan would affect your credit score -- that horse is already out of the barn.  The best thing to do to increase your credit score is to pay every single debt on time, clear the collections account ASAP, and lower the amounts owed to improve the ratio of credit used/credit available.

On your specific situation:  prioritize the debts in order of interest rates.  E.g., why is the federal tax debt, which is on a payment plan at 4%, being paid down in January, while you still owe almost $8K on debts ranging from 17-20% interest?  Is that required as part of your payment plan?  If it is not, and you have the ability to redirect some of that money to the other two debts, do so -- the extra payments to the federal and state tax debt would by themselves be enough to pay off the collections account completely.

My biggest concern is your collections account, because at your current rate it is going to take for-freaking-ever to pay off.  You're currently paying $1200/yr toward that loan.  You owe $3K at 20% interest.  Even if that were simple interest, compounded once a year, that means that you currently owe $600 in interest for the privilege of having this debt -- that is fully half of the money you have thrown at that debt this year.  Think about that:  you paid $1200, and your debt only went down $600 (or less, as no one charges simple interest compounded annually) -- AND all of that is after-tax money, so you probably had to earn $1600 or more just to pay off that $600.  How many hours do you have to work to make $1600 gross?  How does it feel to know that you worked half of those hours just to line the collection agency's pockets?  You are working your ass off to dig yourself out of a hole, but you only have one of those teeny little plastic shovels you use to builds sand castles, and half of the sand you shovel out is falling right back in.

That is why people here say debt is a hair-on-fire emergency.  You have no time or money to build a future when you have to work so hard to pay off your past.   

So:  I will grant you permission to seek a consolidation loan on three conditions:

1.  The loan is at a reasonable interest rate, with no transfer fees/costs, and you only consolidate the loans with interest rates that are higher than the interest charged on the loan (likely only the collections account and the CC, possibly the state tax loan depending on the relative interest rates). 

2.  You then pay only the minimums on the other debts, and throw every single spare penny at the consolidation loan.  Most people who take out consolidation loans use the "extra" room in their budget to rack up more debt.  Don't be that guy -- use it as a jump start towards getting this giant monkey off your back.

And:

3.  You post a full case study, with all of your income and expenses, take the advice, and throw every single additional penny found there at the consolidation loan.  You need to be cutting back anything that is not an absolute necessity until the high-interest debts are paid off.  Period.* 

If you cannot get a reasonable consolidation loan, that's ok -- just double down on the cost-cutting and payoffs.  If you have an extra $350/mo. now to throw at the debt, you can clear the 20% debt within a year.  Then you take the $100 + $350 you were paying towards that debt and throw it at the 17% CC, and again, you will have that cleared before another year is out, and probably the remaining state taxes as well.  And the more spending you can cut, the more you can accelerate these timeframes.

*Once you get everything over 10% paid off, I give you permission to go out to dinner or choose some other similar entertainment of your choice to celebrate.

spjulep

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #13 on: November 29, 2017, 06:55:52 PM »
In Collections from shoulder surgery - $3,000 (20% interest) - MONTHLY: $100
I fully understand it doesn't help now, but in all likelihood this was a completely avoidable situation. Hospitals will generally work with you if you call (or go in person to one of their financial navigators/counselors) and explain that you want to pay your bill, but aren't able to do so in one payment. They'll put you on a payment plan that doesn't go to collections and won't show up on your credit report. Possibly at 0% interest, definitely less than 20%. They may also be willing to decrease the amount. This never should've gone to collections, especially for what was presumably a smallish (under $5,000) bill to begin with. Is the CMRE bill related to this? Did you pay someone to deal with this bill?
I agree and if you haven't already, it is worth calling the hospital and seeing if they can call back the debt and make a deal with you directly. It depends on their system but it doesn't hurt to ask.

As others have said you need to cut expenses to the bone and get a raise or side gigs to increase income. Not sure of your family situation and obligations but if you can get $2,000/month to throw at these debts, you could be out of this in a year or two, right? (Didn't do the math with interest but am estimating.)

After doing this I would pay all minimums and 1) Roll Chase into a credit card with no APR for an introductory period, but pay it off, 2) Pay off the medical bills, 3) Pay off your friend, 4) Pay off the high interest state tax, 5) Pay off the federal tax even though the rate is low, just to avoid having to deal with the IRS, 6) Pay off the unsub loan, 7) Pay off the sub loan.

Carrying any debt is an emergency but you can do this! Read the forums about people who have dug out from much worse.

N

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #14 on: November 30, 2017, 12:00:25 AM »
the biggest problem you have is not that your credit rate is being affected by your debts.
the biggest problem you have is that your debt is COSTING you tons of extra money in interest and fees.

I highly recommend doing a full case study and posting for feedback.
There may be a lot of ways for you to reduce expenses and pay these debts quicker.
Id be less keen on consolidating, and more focused on increasing payments and eliminating debts, and then preventing reoccurrence.

https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

Im speaking as a reformed consumer sucka who has been on the straigt and mustachian path for 5 years. Change is possible!

frompa

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #15 on: November 30, 2017, 09:47:40 AM »
My impression is that your greatest challenge is that you don't realize how big an issue it is that you have this level of debt compared to your income. Your seemingly casual attitude is not serving your interests.  There is no debt resolution fairy who's going to come and take care of this.   Forget credit scores, etc. etc..  That's a "problem" that will take care of itself as you pay these debts off, in order of interest rate/penalty accumulation, one at a time.  In the meantime, cut back your spending -- every penny you put toward settling up this debt is all for the good.  I agree with others who've suggested that consolidation is not in your interests.  Not only would it likely be costly, it will give you the false sense that your financial life is simple and okay, when it's not. "Hair on fire emergency," is probably your best approach to this challenge.  Best of luck. 

shieatt007

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #16 on: November 30, 2017, 04:52:11 PM »
Let me first say, thank you to this forum and all the replies for the invaluable help with my situation. It really means the world, and I'm truly indebted to this community.

  • First up, I will absolutely create a Case Study to document the journey on how I solved this situation.
  • Second, it seems like getting a consolidation loan (while great for reducing interest rates) will simply shift the actual problem around. As stated, a loan doesn't make anything disappear and any affect it will have on my credit score will be achieved if I just paid off the debts starting with the highest interest rates.
  • Main goal is to work on getting more income while SIGNIFICANTLY reducing my spending to a damn near minimum (< $2000/month being the goal). I will be placing myself on a bit of a spending time-out until the most pertinent components of my debt are paid off.

I'm currently paying the monthly minimums on all the above, and will increase this on the high-interest rate debts as I have more money left over.  The medical collections amount is actually IN collections at a third-party agency (not at the hospital) and they are refusing to lower the amount which is incredibly frustrating. 

I will be checking-in intermittently as time goes to let everyone know of my progress, and will create a complete Case Study once I am in a good place again. 

Thanks again, and hopefully this is the beginning of becoming a true financial badass!  Hopefully one day I'll be able to pass this on.
« Last Edit: November 30, 2017, 05:00:10 PM by shieatt007 »

Bicycle_B

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #17 on: November 30, 2017, 06:57:10 PM »
007, it sounds like you're getting it.  Every dollar of savings you devise is super-powered because you can use it to pay down the 20% loan.  Then you will have more cash flow to attack the 16.99% loan with, and so on down the line.

As a tweak, you could try calling the student loan holders and letting them know you are having difficulty making payment.  Sometimes if you are reaching them proactively, they will delay payment or accept a lower payment for 6 to 12 months.  This makes the loan take longer to pay off, but means that you can use the added cash flow to attack the higher interest loans even faster.  Worth a try, maybe. 

As others have said, consistent payments will raise your credit score, but the actual paying due to savings is what will drive the win.  More income is helpful too, of course, but it's amazing how powerful cost control is once you get into it.  Keep going!

swick

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #18 on: November 30, 2017, 07:31:48 PM »


I will be checking-in intermittently as time goes to let everyone know of my progress, and will create a complete Case Study once I am in a good place again. 

Thanks again, and hopefully this is the beginning of becoming a true financial badass!  Hopefully one day I'll be able to pass this on.

The ENTIRE point of the case studies is to do it NOW so you can get actionable advice and support to get you to a good place as fast as possible.  SUpport doesn't do you much good if you have already slogged through it alone taking the harder, more expensive solo route.

fuzzy math

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Re: Need some badasses help! Options for dealing with medium sized debt.
« Reply #19 on: November 30, 2017, 08:36:37 PM »
Collections people make money off you paying as much as possible. They are the most annoying salesmen in the world. Back in my younger days, I had some medical items in collections and they'd call me all hours of the day. Not cool. Remember that debt is purchased for pennies on the dollar and they are making pure profit if they get the $$ off you. Some of them would do the bad cop thing where they'd yell at me, threaten all sorts of crazy shit just because I was a young girl and they thought that would work with me.

My suggestions - keep calling until you get a nicer person. Find out what they would cut you a deal for if you paid on the spot. Or offer them a larger payment in return for a lower APR. Not sure if you have family or someone you could borrow off of. Do you have room on your chase credit card? If you could make a payment with that, or put your monthly spending on it so you have cash to pay the collections people - get them off your back. With your credit report as bad as it is, you likely won't even be able to get another credit card, and if you do its going to be worse than 20%

The debt collection agency will report your debt as unpaid every single month on your credit report. The 7 year wait period for it to fall off your credit record doesn't even begin until its fully paid off. So if you care someday about getting your score up, I'd say that's the largest issue. Its also your highest interest debt, so it makes sense to tackle it first.

Also, your monthly budget looks really high - unless you are in LA, NYC, SF etc you are likely spending way too much. Are those numbers from before you got a roommate?