Feedback on Debt repayment / snowball please :)

cabrerva · January 2014

Hello all, thank you so much for taking the time to provide some thoughts on my questions. I am 23, recently married & graduated from college. I am so new at this, taking charge of our finances early on! I would lik

Xstatic3333 · January 2014

Welcome! I definitely like the first two steps of your plan. I don't know much about collections situations, but maybe someone else will know if it's worth doing that ASAP. Seems to me it might be.

Next I would do the CC, then the car, and then the student loans. Student loans are flexible if anything goes wrong, while car payments aren't. The only thing I might do differently is, if you really think your car is on it's last legs, starting putting away $100 or so for your next car each month outside of your snowball system. Hopefully you can get together enough for a cheapo before you really have to buy.

I'm sorry your H is struggling with cutting back. A lot of people recommend the book Smart Couples Finish Rich to help with getting on the same page. It might be worth checking that out!

cabrerva · January 2014

Thank you so much for the reply! My former employer got me the book, and I have been looking for it since we moved, it's at the top of my must list!

It honestly felt amazing to pay off half of my CC debt yesterday... I think it gave me the extra kick to keep going!

I think what you mentioned is very true, I should try to keep in mind my SL's can stick around for longer while everything else is worked out. I think I am going to focus on saving more for our e-fund and hopefully simultaneously paying off my last 820 in CC debt for this spring.

Putting money away for the car is definitely a good idea, we want to look at something around 10,000 to finance, but with a down payment of at leas $2,000 - so perhaps instead of snowballing the payments which already end this year, we should just save up for a good down payment. I guess it is food for thought..

I am enjoying these boards a lot, really good advice on here. My next step is a part-time or side gig - I used to nanny while in college. Hopefully I can make some side money on weekends, to help snowball more stuff out of the way.

lifeonthehill · January 2014

Welcome! I don't really have much to add. I think your plan looks really great and agree that student loans should be the last thing you do.
I am 22 and recently married as well. H and I have snowballed half of his SL debt and recently took a 4 month break to finish building a 6 month emergency fund. It is great to see another young person so excited to pay off debt. This board is really a fantastic place and if you post your actual budget they will criticize it and help show you where you may be able to cut back. Good Luck!

hoffse · January 2014

First, welcome to the boards and good on you for getting started so young!

I would probably do all of this in the following order:

1) Take care of collections - I don't know much about this, but I would want it long gone from your H's credit report before looking to buy a house. Having a few years of good credit will really help.

2) Get e-fund up to $1,000.

3) Pay off the rest of the credit card.

4) Get e-fund up to $3000 (or whatever your total insurance deductibles combined costs, plus a few hundred extra). If you don't know what your insurance deductibles are, go look it up in your paperwork. It's a good thing to know in life for many reasons.

5) Start contributing to retirement - get this up to 15% of your joint gross income over all your accounts. You can count employer matches if they have vested (are yours) and can't be taken away by your employer if you leave that job.

6) Then turn to student loans and/or house down payment - up to you.

The interest rate on your student loans are so low, that I would pay minimums until I've gotten this other stuff worked out. If you have extra money leftover each month after your bills are paid, you could throw that to student loans or other savings... but getting retirement contributions up comes first.

It's easiest to have retirement just taken out of your paychecks or treat it as another bill if it's self-funded. Then it's a priority. If it seems hard to just start at 15%, then start small and every month or two have another 1% taken out so it doesn't feel like a huge change until you hit your 15%. This comes before student loans because your returns in the market can be waaaaay more than 3% or 5% annually, which is the interest you are paying on those loans. Plus, you have the advantage of time on your side at your age. So get it going now, and by the time you are in your mid-30's, your retirement accounts will be rolling right along.

hoffse · January 2014

Sorry, I forgot about the car... I would probably do that after paying off the credit card and before increasing your e-fund. A car with that many miles could break any day, and you want to be prepared if that happens! That said, once you have your car fund established, I would probably drive the thing into the ground until you're really forced to sell.

When the time comes, I also suggest going to carmax and asking them to give you an offer for your car, whether you plan to buy there or not. They will give you an offer letter valid for 7 days, and if you want to sell the car, they will just give you a bank draft for that amount. You don't have to buy from them to get the bank draft.

H and I have been car shopping a lot recently, and I've come to the conclusion that most car dealerships are making money on the trade-ins rather than car sales.... but carmax's business model is the opposite. They make money on car sales rather than trade-ins.

I have determined this because we have had a couple of ~$2500-$3,000 offers from various dealerships for H's car as a trade-in... which seems about right. But Carmax offered us $5,000 cash. And yet, I can buy a new 2014 Accord from those dealerships for less than a used 2012 Accord costs at Carmax. So I think our plan is pretty obvious....

H once sold this big white van he drove in high school to carmax. It was such a piece of crap. The front passenger seat was in permanent recline. He had somehow "lost" the third row of seats. It had 150K+ miles on it. And the best part: the passenger side sliding door had to be tied shut with a rope. I'm not joking. Carmax gave him $1700 for it.

brij2006 · January 2014

I would stop any extra payments you are making toward anything else (car, CC's, etc), and call to settle the debts that are in collections. Get those done and finished, and focus on them first. They will affect his credit score more than any of the other debts.

Then I would read Dave Ramseys Total Money Makeover and do his plan. Based on your income and debts, it shouldn't take you too long to get them wiped out.

Post your entire monthly budget, and we can help you figure out where to cut back.

VadersValkyrie · January 2014

I've just started using whatsthecost.com to help sort out the debt my husband and I got into when we first bought our condo and he wasn't working yet. It allows you to play around with the numbers, see how it is best to pay off your bills (balance vs. interest), and gives you an actual timeline of how long it'll take.

My first thought would be to make a spreadsheet of all your steady bills: rent, utilities, insurance, groceries, savings contributions. Then look at the difference between that and your combined monthly take-home. That's what you've got left over. Now, add in the minimum monthly payments for all your debts: CC, collections, car payments. What's left over? How much of that do you want for "fun" money, and how much of it can you throw at the other bills? I'd definitely look at the website I put above, as it'll show you how much you'll save in interest.

But to get a cleaner credit record for your husband, you DEFINITELY need to pay off the collections first.

Wulfgar · January 2014

Having listen to both Dave Ramsey and Suzi Orman, for your husband's collection accounts, see if you can't settle for a 1/3 in cash. Don't send them a dime until you have it in writing first. These accounts are small enough that you should be able to do this deal by just talking with them.

Second, I would split half what you are saving in your e-fund for a car replacement fund. I would stick with spending no more than 10k on your next used car until you have more of your debt paid off. I would also wait until you Jeep is ready for the junk yard before getting rid of it.

Third, I would focus anything above your $400 towards your credit card debt. Than roll this into your husband's car loan so you can pay that off even quicker this year.

Finally, I would tackle your student loans from smallest to largest.

During this time, if either employer has matching 401(k)'s put at least the minimum into these accounts. Also, when you get annual COLAs or promotions at work, increase your retirement contributions until you are in the 12 to 15% range.

Smitten2012 · January 2014

Hi!

Wanted to jump in to say your plan sounds great and its been helpful to read all the responses as well!

I may have a very silly question - but reading your intial post - I'm wondering if someone can please help me understand - what is "dropping off" the credit report?

"one which is from 2008 and will be dropping off his CR this year- which we will not touch. The other two will not fal off his CR until2016 or so, one recent for $540 AT&T which we will tackle first, second one from 2008 for $820 from Tmobile- which we mistakenly revived by last year making a payment (therefore statue of limitations is out of the window for 6 more years.) "

I'm aware that the credit report only lists out history for the most recent 7 years; does the above mean: that if I owe a credit card $$$ and not pay / ignore them for 7 yrs I dont have to pay off that balance? I apologize if this was discussed or mentioned prior to this - I only want to make sure your collections doesnt get worse for not reaching out to creditors / working out as some mentioned "pay to delete" plan and if the case is the fact that it "drops off" after 7 yrs - then thats great! Just looking for some clarification here - thanks in advance ladies!

Wulfgar · January 2014

Credit reports only keep bad information for 7 years, they keep good debt from the start to finish that is why with credit cards you want to open one early in life and keep it open until you die.

cabrerva · February 2014

thank you! It's awesome to see other young wives! Most of my twenty-something year old friends have no clue in regards to combining finances, starting an e-fund, etc...

cabrerva · February 2014

We want to tackle the collections, I think I want out E-fund to be slightly larger before I start making calls to settle those accounts... Probably will do so in this month

cabrerva · February 2014

I just found the "Smart couples finish rich" book in some of my old boxes. I'm definitely going to start it this week!

Funny thing is that my Jeep has been going strong, while we've had to shell out $1,000 on the Nissan in 2 months for some things that went wrong. Hopefully we can keep the Jeep going until the wheels fall off, and are ready for a newer used car.

cabrerva · February 2014

From my research on credit reports, the accounts with negative standing are only allowed to last 7 years from the time when you first missed a payment with the account. Since this account is from 2008 it will be literally unlisted from his report within the next year. The account is actually from 2007 so it will be unlisted this year.

The last credit report I got for him listed the dates in which each collection would be removed from the report.

The statute of limitations on how long you are responsible for your CC debt depends on what state you are located in. I am in MA, and our statute of limitations allows the creditors to pursue the debt for 6 years. After this it is considered "Zombie Death" and cannot be pursued in a court of law. If you settle, or make any payments, sometimes even just acknowledging the debt is yours- you can risk re-setting the clock on the debt and then the statute of limitation kicks in once again.

This is my personal understanding of the law, which I researched in regards to our current location. It may help to research on your state government website, and also if it is a significant amount, I would ask an attorney/professional.

cabrerva · February 2014

Thank you ladies for all of the advice!

My unused jewelry got a whopping $840 off of my credit card debt, wohoo! If anyone wants to this, I strongly recommend researching the current price of Gold online, and weighing your jewelry to ensure you are getting the correct amount. Expect to receive about 70 to 80% of the price! Our gold was worth $1200. The first place I went to, the guy at the front desk lowballed us- he offered $500! I knew the amount was not right, so I walked out, and he shouted, wait I'll give you $700! I said I would think about it, and googled another location nearby. We ended up at the mall, in a booth that offered us $840! We negotiated with him a bit, and got them to pay us $900 cash on the spot. Score!

Now on to build up our E-fund to at least $3,000, and tackle the collection notices.

Dear hubby just got a promotion (waiting for everything to be finalized), but we will probably be looking at a bit more money to work with every month. I think we are going to give our dear Jeep a tune up, and hope it's good for the rest of the year while we pay off our Nissan!

Feedback on Debt repayment / snowball please :)

Re: Feedback on Debt repayment / snowball please :)

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