Comments on: Help a Reader Payoff Debt

By: Madison

Madison — Tue, 02 Sep 2008 14:31:17 +0000

@ Dawn, Brad, and The Happy Rock: Thanks for adding your suggestions!

By: The Happy Rock

The Happy Rock — Sun, 13 Jul 2008 02:59:44 +0000

I agree with Joshua and Frugal Dad. Sell the stock, skip the bonus, and put it all on debt starting with the highest rate, although order won’t matter much.

With that said he also needs to change his money behavior, or else he will be right back into this situation in another year or two. This would include tracking spending/budgeting and saving and paying cash for purchases to start. If he isn’t willing to change those things then he might as well keep the debt.

By: Money Management Problem - Credit Card Debt | My Family's Money

Money Management Problem - Credit Card Debt | My Family's Money — Thu, 03 Jul 2008 12:41:04 +0000

[...] over at My Dollar Plan invited her readers to comment on a question she received from a friend about how to get rid of $14,300 in debt. I have never faced debt like this, so what I have to offer [...]

By: Brad

Brad — Fri, 27 Jun 2008 14:21:23 +0000

Interesting that everyone’s talked about just paying off the existing debt. I do agree that with 4-5 months to pay things off, the order really doesn’t matter.

What does matter is that he decided to cut up all but one of his cards and decides to *never* carry a balance ever again.

It sounds like he’s fairly intelligent so he should be able to do some ‘light’ reading to educate himself about debt and it’s compounding effects.

By: Dawn

Dawn — Wed, 25 Jun 2008 14:39:07 +0000

I agree with John that he should take his three credit cards and transfer them to a zero percent interest rate. Make the min payment on this so he can focus on getting the loan paid off. If you take his current money he is paying towards the bills, $1710, and apply it to the he would have the loan paid off in approx 2 months. Then take the $1710 to pay off the zero percent credit card. I would not sell the stock unless it is not doing well. Also, I would suggest on his rewards card that he wants to use for gas, etc. that when he charges an item to write is down in his check book (debit it)so that when the bill comes he has already accounted for the charges and the bill can be paid in full. (the money will be in his checking account) I hope that made sense.

By: How We Spent Our Economic Stimulus Check | Frugal Dad

How We Spent Our Economic Stimulus Check | Frugal Dad — Wed, 25 Jun 2008 11:00:18 +0000

[...] after buying something else. Well, I’m now addicted to the euphoric feelings produced by paying off debt. I took that $1,800 rebate check, drove right past Best Buy and Target, and immediately deposited [...]

By: Madison

Madison — Wed, 25 Jun 2008 02:19:08 +0000

Wow! Thanks everyone for the replies. I’m sure that he will be reading the article today to hear everyone’s thoughts.

By: Julie

Julie — Wed, 25 Jun 2008 02:17:46 +0000

I would get a 0% – 1 yr credit card – put the $14,300 on it. Pay himself $1166 each month into whatever short-term easy access plan he can find – i.e. ING, etc.. Pay minimums on the card each month out of the $1166 and pay the remainder off next year right before the 0% comes due. Allows him to earn interest on the $$, stop throwing away interest, not sell co. stock.

By: jay

jay — Tue, 24 Jun 2008 19:24:06 +0000

I would go with #3, Jon’s, suggestion. Five months of interest isn’t enough to sweat the details. The advantage is light at the end of the tunnel, i.e., a few months of [maybe] serious ratcheting back then he’s done!
Also seems silly to sell off stock in this short term plan, unless he absolutely cannot payoff otherwise and MUST be done by November.

By: deepali

deepali — Tue, 24 Jun 2008 18:05:06 +0000

How much of his income/salary can go towards debt repayment? If he can cover the full $3661 from comment #3 out of his salary, he might as well leave the stock and bonus alone.

The way I see it, he’s got a few options:
1. Using income alone, pay $3661 to all cards per month for November payoff.
2. Using income, pay $3661 to all cards + $3800 from stock #1 for payoff in October.
3. Same as above, but add in stock #2 for almost payoff in September (there will be an additional 1K or so extra needed).

If he can’t use income for the full monthly amount, and only has the $1500 per month, then he’ll have to dip into both stocks and maybe the bonus to meet the November deadline. In that case:
July: Stock #1 to the PL, with the remaining $300 to CC4. Mins to CC1 and CC2 (let’s say $200 tot), with the rest going to CC4 ($1300).
August: Pay off CC4 ($300 and change), stock #2 to CC2, with the rest (~$1200 + $300) to CC3.

In two months he’ll have all but CC3 paid off. He can throw $1500 towards that every month and be paid off in December, without touching the bonus. Or he can pull the remaining ~$600 from his bonus (though it says “possible”, so I wouldn’t necessarily count on it) and be paid off in November.

I guess it’s a question of how soon he wants payoff, and what he can reasonably throw at his debt per month (including stocks/bonus or not).

By: Frugal Dad

Frugal Dad — Tue, 24 Jun 2008 17:10:48 +0000

Short answer…liquidate all non-retirement assets (including company stock and future bonuses) and throw it at the credit cards, in addition to any extra monthly money he can cashflow. Pay the CCs off smallest balance to largest balance.

Once debt free, he can quickly rebuild assets using his income.

By: Joshua

Joshua — Tue, 24 Jun 2008 16:32:59 +0000

This one is easy…

He should pay the MINIMUM payments on the PL and CC’s 1 & 2. He should sell his stock that he receives and use his bonus to pay off CC #3 first. If that is paid off he should then use the extra money (and the extra payment he recovered that he was paying on CC 3) to pay of the PL completely. Finally he should use any remaining money and both recovered payments to pay on CC #1 and then all again on #2.

As you can see it’s best to pay off based on Interest rate and not on balance or type. Why keep the stock? He won’t, on average, earn more on the stocks than he will be paying interest on those accounts.

As for the bonus, I say boo hoo. Stop crying, use the money to pay off these expensive debts and use it as a lesson learned.

As for whatever he wanted to use the money for, it seems he makes enough (more than I do!) to save up for it relatively quickly and purchase it outright rather than on credit.

He should then cut up all his cards, or freeze them, so he doesn’t have this problem again in the future.

That’ll be $150 for my time. I take check, credit cards, cash, money orders, and PayPal. Best of luck to him!

By: Jon

Jon — Tue, 24 Jun 2008 15:46:07 +0000

Paying it all off by November is a pretty ambitious plan. At this point, it’s basically only 4 months of payments – maybe 5 depending on how you calculate “by November” and what the due dates are on his accounts.
Regardless, just to pay off the principal in 4 months is going to take $3575 each month. In this short of a term, the interest rate differences are nearly meaningless.
I figure he can treat each account as if it was an installment loan, approximately, and make equal monthly payments that should leave him with a zero balance at the end of four months (the way cc’s compute interest is always a bit odd, so he may have a small balance on each account to deal with in November.
For this purpose, he can pay 902.51 each month on the personal line of credit, 586.55 a month on CC1, 1679.32 on CC2, and 492.95 on CC3.
This is a total payment of $3661.33 each month. He ends up paying around $350 in interest on all the acounts over that time period.

The main advantage to this method is that it’s fairly simple and everything is paid off at the same time.

By: john

john — Tue, 24 Jun 2008 15:10:49 +0000

I wouldn’t use any available income on credit card debt. First he needs to transfer all the credit card debt to a no interest card, then he needs to decide on a set amount to pay each month. Then anything extra at the end of the month should go to the cards.

By: Beating Broke

Beating Broke — Tue, 24 Jun 2008 15:03:42 +0000

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