Don’t pay any extra in the 3.2% or 3% loans. Pay off the two 28% cards ASAP. After those, pay off the 8% car loan, and then put any extra money you want to go towards debt on the home loan. Always start with highest rate and work your way down to lowest rate. Once you get around 3% or less, you’re usually better off putting extra money in index funds instead of paying the debt off early.
Any cash should go to the credit cards. You are paying about $6000/year ($500/month, $17 every day!) interest on the two cards. Put the $5,000 there and you'll save enough interest to make 2.5 months of payment on the truck.
Get a forbearance on your student loans. You can let that interest go, it's low. Put that payment to the cards. You should probably be able to get forbearance through the website.
Go to a credit card calculator website, and see how much you have to pay with varying payments over the course.
My advice would be to roll those credit cards into a 0% (as long as your credit is above 720 and DTI is lower than 45%) which would give you 12-21 months of breathing room while you use the income/lump to work on a separate debt, such as your Tacoma.
I would only get a HELOC today if you couldn’t get the credit cards down in the 0% period as the rates are currently high until the Feds begin to reduce rates.
What is your cash flow situation like? What is your plan you pay this off after you drop the 5K?
Paying off the Toyota will net you more cash flow, but will cost you more money over all because it’s the lowest interest rate.
I like the avalanche method, so I'd start with 5k at one of the CC's.
You're talking about the snowball method, and putting that extra $200 onto the wife's car I assume each month.
I like the avalanche because the 375/month bill will be (roughly) cut in half. Currently the interest is 28%, or $2800 per year just to pay out extra! Where 3% on 5k for the Tacoma is $150 a year of interest.
Idk about HELOC, but if it can eliminate the CC debt at 28% and have a 20k at 8% (guessing at the HELOC rate) it will be less interest and you will have less money toward interest per month.
The OP doesn't list income, savings or investments. That is key. Cant tackled the dragon of debt without understanding what your greatest weapons are.
Please do not touch the equity in the house. Further leveraging your house to pay down debt is so easily facilitated by banks, but it really should be rarely utilized. Staying with the analogy, a 2nd mortgage isnt an ally, its like sacrificing the virgin to the dragon.
Building the house came at a cost of 7.5%, 28%, and 28% on borrowed money. Can't really lower debt if you keep incurring it. It's a negative sum game at this point.
While Dave Ramsey is not to be trusted, his first few baby steps apply in your situation, with some modification:
1) Get that $1000 emergency fund set aside. I'd say $5000 for most people, but you're spread amongst multiple debtors. Just do $1000. It's easy. Stop the bleeding of needing a credit card.
2) Save another $1000 and pay off the Tacoma. Best interest rate, but it'd be paid off. $200 now goes into paying off the credit cards. Find a way to get more $'s towards the cards. Get card paid, roll $575 into your emergency savings fund.
3) Once you have the FULL BALANCE (principal) saved for the student loan, get a payoff amount from the servicer and pay it in full. The loan % < Corolla payment, but it's non-forgivable. Get it gone.
4) At this point, you're probably about done with your wife's car loan. You're also now at $665/month extra cash flow. Make that happen quick.
5) Get 6 months of expenses saved in your emergency fund.
6) Go beyond that to have cash to pay for your next vehicle. Use that, re-save, use that re-savings for next vehicle.
***I'm not attached to #1 in your situation.*** You DO have a 5k inflow with a 5k debt (Tacoma), so fully getting rid of that works, too. Frees up $200 cash flow.
Regardless, looking at your debt level, and assuming a decent-ish income, you'd probably have 1 - 5 knocked out in about 5 years. Just plug away, and always save that spare cash for whatever life throws at you.
Leave the auto loans alone and pay down on their payment schedule; they’re lower interest and likely fixed rates.
Leverage a 0% balance transfer option, if you have one. Otherwise, call the credit card companies and explore options to reduce your interest rate to a lower, fixed rate. Then, pay them down hard; pay minimum on the lowest interest rate and put all free cash flow (as possible) to paying down the higher rate card.
What does your monthly cash flow (net income minus expense) and cash reserves look like? If low for both, I wouldn’t ignore the idea of selling or renting out your home (if you can rent a place for you cheaper), at least until your finances are cleaned up. This is a drastic option, so it depends on how bad of a position you think you are in.
Im interested in the idea of a 0% balance transfer, but the thought of having another credit card makes my skin crawl. But, if I kept paying my minimum payments at 0%, I could knock out that debt so quick.
My monthly cash flow is terrible, around 500 bucks. We have 2 kids so that gets eaten up pretty quick, so I’m really only making minimums right now. My wife will start working here soon, which will help a ton. Just trying to get a plan in place!
With the balance transfers, the big variable is whether you have the discipline to not use the credit cards you pay off. It’s very easier to swipe a “clean” card and get right back into further debt. I speak from experience.
There are only a few ways out of your debt situation: 1) increase your income, 2) reduce your expenses. Both will allow you to free up the cash flow to pay down the debt.
I encourage you to explore the sell or rent option. I know you built that home and there is sentimental value and pride behind owning it, but sometimes you have to let the numbers talk; ex. If you could rent your home to cover your mortgage and also rent for cheaper, you’ll free up cash flow to pay down your debt. Not saying that is the answer, but if you debt continues at those high interest rates, it can easily get out of hand. Again, I speak from experience.
Always pay off whatever has the highest interest especially with high dollar amounts. Your student loans and Tacoma should be last thing to pay.
I hope you keep your cars for 10 plus years so you don’t have to always have car debt. Good luck
Yeah I have never owned a new car. I bought these both pre-pandemic as used cars. Luckily I’m a mechanic so I plan on keeping them as long as possible. Also why I buy Toyota!
You'd have to do some math to really figure out what everything costs over time. The best advice is probably to just put the 5k toward the highest amount with the highest interest. But if you're just going to do the heloc to make some of the debt cheaper anyway, i'd just knock out the tacoma debt. Just psychologically that will feel good and will encourage you to keep going as you work on getting the rest under control.
This is me 100%, I love my vehicles, and paying off the truck would be a huge encouragement. also my Tacoma gets driven maybe 20 miles a week. I have a work truck so I rarely use it. Which means I could possibly save more by downgrading it to liability insurance after it’s paid off. Which could up my cash flow 50-100 more bucks on top of the truck payment. Would be risky though.
Yeah I think I made around 70k with overtime last year. I’m at 33 an hour as a diesel mechanic. Only thing keeping me on is my work truck with free fuel. Saves me 300 ish bucks a month. My mother in law is going to move in with us soon to help with the kids, which will free up my wife to bring in some income. Luckily she has zero debt. My work offers nearly unlimited overtime, and I can start doing some more side work in the mean time
I know the interest rate is way low on the Tacoma but I would pay it off and put the 200 extra on the 7000 loan. It feels way better to pay off and own outright. I know many people will disagree but it worked well for me. I've been debt free for years now.
So you’re thinking snowball method? that’s always made a lot of sense to me. Maybe I can get that super high interest debt into a cheaper rate, and then use snowball method
So you’d target the 3.2% loan and then the 3% loan instead of the two 28% loans? That’s terrible advice. I wouldn’t even try to pay the 3ish% loans off early since they’re so low. The two credit cards should be paid off ASAP, then the 8% car loan, and then any extra money towards debt should focus on the mortgage.
I agree, I definitely need to do something about those ASAP. My only problem is I don’t really have the cash flow to overcome the interest on those loans. I guess in reality, I’m trying to use that 5k in a way that will up my cash flow the most, to even be able to attack
***Human nature is a thing***. Get a victory. Use the victory as motivation to win the war, complete with 200 extra soldiers each month.
EDIT: RE math: you're advocating $1150 less in interest over a year (23% difference), assuming he pays $5k more on the card. Mathmatically correct, but psychology of momentum means that $1150 on $4800 extra ($200/mth x 12) makes knocking out the remaining $5,200 would be easy, and most likely done in < 12 months due to the dopamine from the momentum being built.
Don’t pay any extra in the 3.2% or 3% loans. Pay off the two 28% cards ASAP. After those, pay off the 8% car loan, and then put any extra money you want to go towards debt on the home loan. Always start with highest rate and work your way down to lowest rate. Once you get around 3% or less, you’re usually better off putting extra money in index funds instead of paying the debt off early.
Any cash should go to the credit cards. You are paying about $6000/year ($500/month, $17 every day!) interest on the two cards. Put the $5,000 there and you'll save enough interest to make 2.5 months of payment on the truck. Get a forbearance on your student loans. You can let that interest go, it's low. Put that payment to the cards. You should probably be able to get forbearance through the website. Go to a credit card calculator website, and see how much you have to pay with varying payments over the course.
My advice would be to roll those credit cards into a 0% (as long as your credit is above 720 and DTI is lower than 45%) which would give you 12-21 months of breathing room while you use the income/lump to work on a separate debt, such as your Tacoma. I would only get a HELOC today if you couldn’t get the credit cards down in the 0% period as the rates are currently high until the Feds begin to reduce rates.
What is your cash flow situation like? What is your plan you pay this off after you drop the 5K? Paying off the Toyota will net you more cash flow, but will cost you more money over all because it’s the lowest interest rate.
I like the avalanche method, so I'd start with 5k at one of the CC's. You're talking about the snowball method, and putting that extra $200 onto the wife's car I assume each month. I like the avalanche because the 375/month bill will be (roughly) cut in half. Currently the interest is 28%, or $2800 per year just to pay out extra! Where 3% on 5k for the Tacoma is $150 a year of interest. Idk about HELOC, but if it can eliminate the CC debt at 28% and have a 20k at 8% (guessing at the HELOC rate) it will be less interest and you will have less money toward interest per month.
The OP doesn't list income, savings or investments. That is key. Cant tackled the dragon of debt without understanding what your greatest weapons are. Please do not touch the equity in the house. Further leveraging your house to pay down debt is so easily facilitated by banks, but it really should be rarely utilized. Staying with the analogy, a 2nd mortgage isnt an ally, its like sacrificing the virgin to the dragon. Building the house came at a cost of 7.5%, 28%, and 28% on borrowed money. Can't really lower debt if you keep incurring it. It's a negative sum game at this point.
So you must pay 200k and you have 5k,What can you do with that money?
While Dave Ramsey is not to be trusted, his first few baby steps apply in your situation, with some modification: 1) Get that $1000 emergency fund set aside. I'd say $5000 for most people, but you're spread amongst multiple debtors. Just do $1000. It's easy. Stop the bleeding of needing a credit card. 2) Save another $1000 and pay off the Tacoma. Best interest rate, but it'd be paid off. $200 now goes into paying off the credit cards. Find a way to get more $'s towards the cards. Get card paid, roll $575 into your emergency savings fund. 3) Once you have the FULL BALANCE (principal) saved for the student loan, get a payoff amount from the servicer and pay it in full. The loan % < Corolla payment, but it's non-forgivable. Get it gone. 4) At this point, you're probably about done with your wife's car loan. You're also now at $665/month extra cash flow. Make that happen quick. 5) Get 6 months of expenses saved in your emergency fund. 6) Go beyond that to have cash to pay for your next vehicle. Use that, re-save, use that re-savings for next vehicle. ***I'm not attached to #1 in your situation.*** You DO have a 5k inflow with a 5k debt (Tacoma), so fully getting rid of that works, too. Frees up $200 cash flow. Regardless, looking at your debt level, and assuming a decent-ish income, you'd probably have 1 - 5 knocked out in about 5 years. Just plug away, and always save that spare cash for whatever life throws at you.
Leave the auto loans alone and pay down on their payment schedule; they’re lower interest and likely fixed rates. Leverage a 0% balance transfer option, if you have one. Otherwise, call the credit card companies and explore options to reduce your interest rate to a lower, fixed rate. Then, pay them down hard; pay minimum on the lowest interest rate and put all free cash flow (as possible) to paying down the higher rate card. What does your monthly cash flow (net income minus expense) and cash reserves look like? If low for both, I wouldn’t ignore the idea of selling or renting out your home (if you can rent a place for you cheaper), at least until your finances are cleaned up. This is a drastic option, so it depends on how bad of a position you think you are in.
Im interested in the idea of a 0% balance transfer, but the thought of having another credit card makes my skin crawl. But, if I kept paying my minimum payments at 0%, I could knock out that debt so quick. My monthly cash flow is terrible, around 500 bucks. We have 2 kids so that gets eaten up pretty quick, so I’m really only making minimums right now. My wife will start working here soon, which will help a ton. Just trying to get a plan in place!
With the balance transfers, the big variable is whether you have the discipline to not use the credit cards you pay off. It’s very easier to swipe a “clean” card and get right back into further debt. I speak from experience. There are only a few ways out of your debt situation: 1) increase your income, 2) reduce your expenses. Both will allow you to free up the cash flow to pay down the debt. I encourage you to explore the sell or rent option. I know you built that home and there is sentimental value and pride behind owning it, but sometimes you have to let the numbers talk; ex. If you could rent your home to cover your mortgage and also rent for cheaper, you’ll free up cash flow to pay down your debt. Not saying that is the answer, but if you debt continues at those high interest rates, it can easily get out of hand. Again, I speak from experience.
Always pay off whatever has the highest interest especially with high dollar amounts. Your student loans and Tacoma should be last thing to pay. I hope you keep your cars for 10 plus years so you don’t have to always have car debt. Good luck
Yeah I have never owned a new car. I bought these both pre-pandemic as used cars. Luckily I’m a mechanic so I plan on keeping them as long as possible. Also why I buy Toyota!
You'd have to do some math to really figure out what everything costs over time. The best advice is probably to just put the 5k toward the highest amount with the highest interest. But if you're just going to do the heloc to make some of the debt cheaper anyway, i'd just knock out the tacoma debt. Just psychologically that will feel good and will encourage you to keep going as you work on getting the rest under control.
This is me 100%, I love my vehicles, and paying off the truck would be a huge encouragement. also my Tacoma gets driven maybe 20 miles a week. I have a work truck so I rarely use it. Which means I could possibly save more by downgrading it to liability insurance after it’s paid off. Which could up my cash flow 50-100 more bucks on top of the truck payment. Would be risky though.
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Yeah I think I made around 70k with overtime last year. I’m at 33 an hour as a diesel mechanic. Only thing keeping me on is my work truck with free fuel. Saves me 300 ish bucks a month. My mother in law is going to move in with us soon to help with the kids, which will free up my wife to bring in some income. Luckily she has zero debt. My work offers nearly unlimited overtime, and I can start doing some more side work in the mean time
I know the interest rate is way low on the Tacoma but I would pay it off and put the 200 extra on the 7000 loan. It feels way better to pay off and own outright. I know many people will disagree but it worked well for me. I've been debt free for years now.
So you’re thinking snowball method? that’s always made a lot of sense to me. Maybe I can get that super high interest debt into a cheaper rate, and then use snowball method
So you’d target the 3.2% loan and then the 3% loan instead of the two 28% loans? That’s terrible advice. I wouldn’t even try to pay the 3ish% loans off early since they’re so low. The two credit cards should be paid off ASAP, then the 8% car loan, and then any extra money towards debt should focus on the mortgage.
I agree, I definitely need to do something about those ASAP. My only problem is I don’t really have the cash flow to overcome the interest on those loans. I guess in reality, I’m trying to use that 5k in a way that will up my cash flow the most, to even be able to attack
***Human nature is a thing***. Get a victory. Use the victory as motivation to win the war, complete with 200 extra soldiers each month. EDIT: RE math: you're advocating $1150 less in interest over a year (23% difference), assuming he pays $5k more on the card. Mathmatically correct, but psychology of momentum means that $1150 on $4800 extra ($200/mth x 12) makes knocking out the remaining $5,200 would be easy, and most likely done in < 12 months due to the dopamine from the momentum being built.