Advice needed in paying of cc debt

[needhelp]

I would some advice as to how do I go about paying off my cc debts.

Here is the scenario:

Take home salary: $11,500

Debt:

Car loan: $72,200 (balance)
CC1: balance of $47,200
CC2: balance of $30,500
CC3: balance of $8,600

Monthly Expenses:

Payment towards CC's: $4,100
Home expenditures: $2,100
Car loan: $1,944
Total: approx $8,150

I save up more or less around $2,700 a month (this is mandatory as I had a personal loan to a family i had to pay off last month, which made my bank balance almost negligible).

The interest rates on the CCs are killing me. They are approx 29.99%p.a per card. The interest on CC1 alone is around $1,500 per month.

I plan to take a personal loan from my bank (at 8.24%) for either $30,500 (12 months, monthly payment of $2,638) or $61,100 (24 months , monthly payment $2,750) to pay off my credit card(s), as the interest on the personal loan is much lower than what the CCs are charging me.

I am due for a cash commission of $33,000 (for last years sales) from my company, which is to be paid either this month or next month. Out of this, I would like to keep about $13,750 in a savings account and not touch it (for a rainy day).

The car loan is not hurting me, and I plan to pay that off in the next year or two. But I really need to get rid of the CC debt entirely or at least reduce my interest charges, while at the same time having a healthy savings balance.

I have never gone in debt this deep, and due to some personal issues last year, I had to rack up such debts. Anyways, I want to come out clean, and breath a bit easily now, as this debt is eating me up inside. (sorry for the emotional rant, but it is true).

I would appreciate advice on my situation on a repayment structure.

Thanks in advance.

[disneysteve]

What was the source of over $86,000 in credit card debt?

I'm guessing that the $4,100 for CC payments is the minimum payments. That leaves you over $3,000 more free to put towards it. If you pay $7,500/month, the 86K will be paid off in about a year. If you throw 20K of the commission at the debt and then pay $7,500/month, you'll be paid of in 9 months.

So no matter what, this will be cleaned up soon.

Definitely reconsider the car. It is out of whack to your income.

[bjl584]

What kind of car do you have that has a $72K loan on it? I'd sell it and buy something for cash. Take the money that you were using to pay the auto loan and throw it toward the CC's. Then take any other extra money that you have or can find by cutting expenses and throw that toward the car as well. You can pay it off fairly quickly if you bump your payments.

[needhelp]

Thanks for the advice.

The source of the debt were various things, mostly to help my in-laws (personal matter) last year.
The car loan is not killing me, in fact when I had taken the car loan, that was the only debt I had.
What is hurting are the credit cards.
Do you think it is advisable taking a personal loan (since its a much lesser interest rate) to pay off the CCs? If so, what amount would be appropriate? Should I take out a personal loan to pay off the cc's minus the commission amount I get?

I need to have some money in my savings too, as I am a firm believer of saving for a rainy day (unfortunately i was not able to do that earlier due to my situation).

[disneysteve]

Do you think it is advisable taking a personal loan (since its a much lesser interest rate) to pay off the CCs? If so, what amount would be appropriate? Should I take out a personal loan to pay off the cc's minus the commission amount I get?

As I said, you can have this CC debt gone in 9 months as is. Personally, I wouldn't go through the hassle of taking out a new loan for debt that will be gone that quickly either way.

I have to disagree about the car. Rule of thumb is for a payment of no more than 10% of your monthly income for no more than 3 years. Your payment is 17% of your income for more than 3 years. You bought too much car. Whether or not you can swing the payments is different than whether or not you can really afford the purchase.

[needhelp]

Ok, so i may sway away from the personal loan. I like the idea of having only the car loan at the end of 9 months.

So how would I go about doing that. Which CC should I pay of first? The one with the largest balance, or lowest (the interest rate on all 3 CCs are the same).

If I pay the smallest CC first, the interest on the largest balance would accumulate. (hence I was thinking of making a balloon payment thru the personal loan).

[disneysteve]

Which CC should I pay of first? The one with the largest balance, or lowest (the interest rate on all 3 CCs are the same).

If you actually get this done in 9 months, it won't matter all that much either way. Mathematically, it is best to pay off the highest interest loan first.

[dczech09]

Assuming most of your CC debt is at that 29.99% APR, it really does not matter what order you clean things up. Go smallest payoff to largest.

As for the car... SELL THE CAR! IT IS JUST A CAR!

That hunk of metal is eating 17% of monthly income and that is not counting the gas, maintenance, and insurance. Sell it, get a much more inexpensive car and use any leftovers from the sale to knock out some of this debt.

I know you THINK that the car is not the problem. Well guess what friend- that attitude is the problem. A car loan for $72,200 is too large of a car loan for ANYBODY! And it is costing you a fortune.

I take it you're a salesperson. And that car was bought to impress clients. Question: would they be impressed to know that the thing is eating your income? I understand if you want to keep the car, but you gotta let it go. You can get something just as realiable for half of that freakin' balance.

[disneysteve]

A car loan for $72,200 is too large of a car loan for ANYBODY!

You know, this is actually a very good point. Note that dzech did not say that a $72,000 car is too much for anybody. He said that a $72,000 CAR LOAN is too much for anybody. If you get yourself debt free, live well below your means and sock away cash for retirement and other needs and along the way stash $72,000 in cash that isn't needed for anything else and want to go out and pay cash for an ultra luxury car, that will be the time to do it.

[neatdesign]

The car loan is not hurting me, and I plan to pay that off in the next year or two.

The car loan is not killing me, in fact when I had taken the car loan, that was the only debt I had. What is hurting are the credit cards.

You keep saying that the car loan isn't hurting you, as if you're trying to convince yourself of this as much as you're trying to convince us.

The fact of the matter is that when you got the car loan, it wasn't hurting you -- because you didn't have any of this crushing CC debt. But now you do, and so now it is.

Seriously, if you sold the car for $72k and then bought a new car for $22k in cash, that gives you $50k to throw at your debt, just like that. Then you can increase your current CC payments from $4100/mo to $6044/mo (old CC payment + old car payment) and you'd have all of your CC debt paid off in no time.

Seems like a no-brainer to me!

[needhelp]

Thanks for all your advices. Wether I like it or not, the car is staying. If I sell it right now, I will be lose way too much money.
I just got confirmation that I will be getting my commission tomorrow. so i will at least take care of one CC. I was thinking I may pay off CC2's balance off completely. but that would mean I would have to wipe out the full commission amount. I know its the right thing to do, but I hate having the fact of a zero balance in my savings.

[bjl584]

Thanks for all your advices. Wether I like it or not, the car is staying. If I sell it right now, I will be lose way too much money.
I just got confirmation that I will be getting my commission tomorrow. so i will at least take care of one CC. I was thinking I may pay off CC2's balance off completely. but that would mean I would have to wipe out the full commission amount. I know its the right thing to do, but I hate having the fact of a zero balance in my savings.

You can keep the car if you want, but it does represent an extra $1900 a month that you could put toward CC debt. Personally, I'd think about selling it, even if it meant taking a loss.

If you have no money saved, then keep part of your commission (30% maybe) and use the rest to pay down the CC.

[DebtFree&Broke]

Car loan: $72,200 (balance) $1,944
CC1: balance of $47,200 $2243.87
CC2: balance of $30,500 $1451.28
CC3: balance of $8,600 $395.86
Total Debt: $86300

Monthly Income $11,500
Home Expenditures: $2,100
Loan Payment (Minimum): $6044
Total: $8144

You need to stop adding to your savings every month and pay down your debts instead. The $2,700 you have will be enough until you get your commission. You only need 3-6 months of expenses in your emergency fund, so when you get your commission next month add to your savings until you have $12,600. Then throw the rest at the loans.

Here are my suggestions for paying off the loans faster (all lowest balance first snowball):Snowball debt calculator - Become debt free at WhatsTheCost.com

No changes: Will take you 34 months and $45,813 in interest. It will take you 30 months to pay off your first loan Card #3. Ouch!

Pay $9,400/month (stop putting money in savings): Will take 20 months and $21,850 in interest. You will pay off Card #3 in 3 months.

Pay $9,400/month and throw $23,100 of commission check at credit cards: Will take 16 months and $13,156 in interest. Card #3 will be paid right away and Card #2 will be gone in 4 months!

Personal Bank Loan $61,100 (still paying $6044/month): Will take 31 months and $24,517 interest. In 25 months you will payoff all three cards!

Personal Bank Loan & pay $9,400/month: Will take 19 months and $11,927 in interest. Your $25200 left on CC #1 will be gone in 6 months, and the bank loan within 13 months.

Personal Bank Loan, pay $9,400/month, and throw $23,100 of commission check at credit cards: Will take 16 months and $7,783 in interest. That's all three credit cards and the car loan gone in 16 months!

So if you can get a bank loan it will save you $5400 in interest, but either way you will be completely out off debt in 16 months. If you pay $9,400 a month and throw $23,100 at the debt next month you will save at least $32,650 in interest!!

[DebtFree&Broke]

Car loan: $72,200 (balance) $1,944
CC1: balance of $47,200 $2243.87
CC2: balance of $30,500 $1451.28
CC3: balance of $8,600 $395.86
Total Debt: $86300

Monthly Income $11,500
Home Expenditures: $2,100
Loan Payment (Minimum): $6044
Total: $8144

You need to stop adding to your savings every month and pay down your debts instead. The $2,700 you have will be enough until you get your commission. You only need 3-6 months of expenses in your emergency fund, so when you get your commission next month add to your savings until you have $12,600. Then throw the rest at the loans.

Here are my suggestions for paying off the loans faster (all lowest balance first snowball):

No changes: Will take you 34 months and $45,813 in interest. It will take you 30 months to pay off your first loan Card #3. Ouch!

Pay $9,400/month (stop putting money in savings): Will take 20 months and $21,850 in interest. You will pay off Card #3 in 3 months.

Pay $9,400/month and throw $23,100 of commission check at credit cards: Will take 16 months and $13,156 in interest. Card #3 will be paid right away and Card #2 will be gone in 4 months!

Personal Bank Loan $61,100 (still paying $6044/month): Will take 31 months and $24,517 interest. In 25 months you will payoff all three cards!

Personal Bank Loan & pay $9,400/month: Will take 19 months and $11,927 in interest. Your $25200 left on CC #1 will be gone in 6 months, and the bank loan within 13 months.

Personal Bank Loan, pay $9,400/month, and throw $23,100 of commission check at credit cards: Will take 16 months and $7,783 in interest. That's all three credit cards and the car loan gone in 16 months!

So if you can get a bank loan it will save you $5400 in interest, but either way you will be completely out off debt in 16 months. If you pay $9,400 a month and throw $23,100 at the debt next month you will save at least $32,650 in interest!!

[dczech09]

Thanks for all your advices. Wether I like it or not, the car is staying. If I sell it right now, I will be lose way too much money.
I just got confirmation that I will be getting my commission tomorrow. so i will at least take care of one CC. I was thinking I may pay off CC2's balance off completely. but that would mean I would have to wipe out the full commission amount. I know its the right thing to do, but I hate having the fact of a zero balance in my savings.

Whatever. I love the language though. "Whether I like it or not..." Amazing.

We gave you advice based on what we would do, and we thoroughly justified it. However you are obviously convinced against your own will that this car has to stay. I guess being debt free and having peace of mind is worth less than $72,000...

So putting that aside, the next question you need to figure out is HOW you got that much credit card debt in the first place. Do you have plans to prevent that from happening again? If you do not, then the debt will just come back.

You should question wiping out your full commission check to pay off debt? Do you know why you should question it? Because that shows you that it is the right thing to do.

Savings is great to have, but having a ton a credit card debt almost defeats the purpose of having a huge amount of cash saved. I recommend you have SOME money set aside for emergencies (like a few thousand). But you also need to attack this debt. But I can already tell you are not fired up about it.