How do we deal with this credit card debt?

kelley198721 · December 2015

Hi all. I got married two months ago and unfortunately, my husband and I were forced to resort to using credit cards for some big last minute expenses. I hate that we weren't more prepared but I'm trying not to dwell on it and fix the problem.

So in January, we are expecting some money to come in, about $4,000. Our credit card debt is spread out among 4 cards and I'm trying to figure out the best way to allocate the money. So here goes.

My Capital One card: Balance is $4,713.80 with a 5k limit. APR is 0% until May 2016, then it will be 17.90%. I'm panicking about not getting this card paid off before May. Minimum payment for January is $47.

DH's Capital One Card: Balance is $2,597.99 with a 3k limit and APR is 22.99%. Minimum payment is $73 for January.

DH's Chase Freedom: Balance is $1,102.63 with a $1200 limit. 0% APR until 10/4/2016. Not sure yet what the APR will be after that. Minimum payment is $25.

My Discover card: Balance is $322.70 with a $700 limit. APR is 22.99%. Statement hasn't closed yet so I don't know yet what the minimum payment will be but we've always paid the Discover card off in full so far. But we won't be able to for January. I think minimum payment will probably be $25.

I can't figure out what would be the best option. Pay off my Capital One card as much as I can since it has the highest balance? Or pay off DH's card in full first because we are now paying interest on that and put the leftover amount to my card?

Help. We would love to be able to buy a house but I know we can't until we get this debt out of the way

. Thanks in advance!

smerka · December 2015

Before I answer, I need more info. How much each month do you have to go towards paying off debt, aside from the $4,000? For the cards with 0% interest - do you have to go back and pay interest on to total amount borrowed or is the new interest rate only on the current balance?

dragonstarjk · December 2015

Is the $4K coming in extra money that is not allocated in your budget? If so, I would pay off the three smaller balance credit cards. That would be enough to pay them all off, and then you could snowball everything you are currently paying on credit cards to your one big Capital One balance, and hopefully pay it off before the 0% runs out.

Also, I would cut those three cards up as soon as they are paid off. The fact that all of the cards are carrying balances near their limits tells me that you guys are not in a place where you can have credit cards at your disposal without m

AprilZ81 · December 2015

Until the $4,000 comes in I would pay the minimums on on all of your cards then put anything else you have available to pay down debt towards your Discover Card (my reasoning is that it is a smaller balance and a high interest rate).

Continue this plan until that card is paid off then roll that payment into your DH's Capitol One card (because of the interest).

Since you have several 0% interest cards that will have the promotion run out in less than a year you guys may need to look at selling some stuff, getting a second job and cutting back on your expenses (cut back on entertainment, groceries, cable, etc.

If/when that $4,000 comes in that will put you in a much better position, but you will still need to be very careful about making sure that balance gets paid before the promotion runs out.

hoffse · December 2015

I would pay off your H's capitol one card and the discover card, then put the ~$1,000 or so leftover to your capitol one. Pay that one off stat to get it done by May, and then move to the Freedom card since you have until October.

And yes, cut those cards up!

simplyelise · December 2015

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How much extra each month will you be able to devote towards paying the CCs? Until we know that amount, I think I'd follow along with dragonstarjk's plan above.

I just went back to read some of your posts to remind myself of your situation. It looks like you wanted to start opening credit card accounts to build up your credit scores in preparation for buying a house. Having account balances so close to the credit limit is definitely not going to help your credit scores. So once you get these paid off, it seems like the best course for you guys, if you want to keep a card open to build credit, is to set it up so one thing a month goes on the card and it gets paid off every month. I actually use this method myself and only use my credit card for gas then pay it off right away.

The real way to keep yourself from resorting to credit cards to handle "big expenses" is to build up an emergency fund and also sinking funds for big expenses that you can predict. We have a sinking fund right now to replace my husband's car when it goes out. We only have $1200 in there right now, but we keep adding a little each month.

Because you have around $45,000 in other debt in addition to the $8735 in credit card debt listed above, I really really recommend you and your husband take Financial Peace University by Dave Ramsey. It will help you get on a budget that actually works, plan ahead for expenses, tackle your debt, and plan for buying a house and retiring.

julieanne912 · December 2015

hoffse said:

I would pay off your H's capitol one card and the discover card, then put the ~$1,000 or so leftover to your capitol one. Pay that one off stat to get it done by May, and then move to the Freedom card since you have until October.

And yes, cut those cards up!

This is what I would do as well.... assuming the 4k comes in.

brij2006 · December 2015

I will second Dave Ramsey's Total Money Makeover for you. It's a great plan and tool to get rid of the debt and set yourself up for financial success.

I would start with the smallest balance and work your way up, snowballing the payment from the one that's paid off, onto the next largest balance. The $4,000 would get rid of all but the highest balance one.

Then I would get on a written budget. You both sit down and look at last months' numbers, and see what all was spent on what, and categorize every expenditure. Then use that to create a budget for January. Any extra money there is, put it toward the next credit card.

Also, cut up the cards. I know you took them out to gain credit, but they are causing more harm than helping at this point.

short+sassy · December 2015

simplyelise said:

.

How much extra each month will you be able to devote towards paying the CCs? Until we know that amount, I think I'd follow along with dragonstarjk's plan above.

I just went back to read some of your posts to remind myself of your situation. It looks like you wanted to start opening credit card accounts to build up your credit scores in preparation for buying a house. Having account balances so close to the credit limit is definitely not going to help your credit scores. So once you get these paid off, it seems like the best course for you guys, if you want to keep a card open to build credit, is to set it up so one thing a month goes on the card and it gets paid off every month. I actually use this method myself and only use my credit card for gas then pay it off right away.

The real way to keep yourself from resorting to credit cards to handle "big expenses" is to build up an emergency fund and also sinking funds for big expenses that you can predict. We have a sinking fund right now to replace my husband's car when it goes out. We only have $1200 in there right now, but we keep adding a little each month.

Because you have around $45,000 in other debt in addition to the $8735 in credit card debt listed above, I really really recommend you and your husband take Financial Peace University by Dave Ramsey. It will help you get on a budget that actually works, plan ahead for expenses, tackle your debt, and plan for buying a house and retiring.

There are few things that will torpedo a credit score more than being so close to your credit limits. But the really, really good news on that is, it is also one of the few credit problems that will raise your score quickly, once the balances get into the 25% or better utilization rate.

Not to mention, as you work toward being in a position to buy a house...but paying off cardsand saving for down payment and e-fund first...not having any CC debt will decrease your debt to income ratio. Banks love that.

How do we deal with this credit card debt?

Re: How do we deal with this credit card debt?

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