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Debt Discussions about debt and how to deal with debt.

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  #1  
Old 09-26-2011, 11:15 AM
hokiehunter07 hokiehunter07 is offline
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Join Date: Sep 2011
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Default Newbie here, trying improve my situation.

Hey folks,
I'm new here but heave really been working on my debts within the last couple years. I'll give you some background then my proposed path forward:

I'm a 27yo engineer married to a 23yo BSN RN. together we probably make over $120,000 in base salary and I usually add another $10-20,000 in overtime, travel, and bonuses. We plan to start a family within the next year.

Ok, so here's the hard side of things. I got a visa my freshman year of college and was VERY good with it until my last year. I came out of college with about $24,000 in student loans and about $8,000 in CC debt. Stupid me bought a piece of crap Dodge ram for $18,900 at 8.9% over 6 years. I then met my wife who was a college freshman and basically payed all her living expenses while she was in college.

We got married I bought a townhouse (~$1000 with PMI, mortgage, insurance, HOA all rolled in) and bought her a car ($12,500 at 6.9%).
Well our wedding ratcheted my visa debt up to about $17,000 and I also had about $3,000 on an American express.

She started working in January and we basically use her entire salary towards debt and mine towards standard bills + some towards debt + 401k + saving for down payment towards a larger house. We live in a college town and plan to rent our townhouse out when we move into another house.

Since January I've gotten the Visa down to $13,000. In July I sold the Dodge ram for more than it was worth, paid off the American express, paid off another side personal loan, and paid off the remainder of the truck loan. I then went out and bought a much smaller truck for $5500 at 2.49% for 3 years. I also transferred $10,000 towards a Visa at 0% for 15 months.

So here's where I'm at now:
$9750 on Discover 0% for 15 months, 23% afterwards
$2700 on Visa at 9.8%
$8100 on Wife's car 6.9%
$4500 on truck at 2.5%
$3000 on one student loan at 4.5%
$3000 on one student loan at 4%
$12,000 on one sl at 1.9%
$24,000 on one SL at 5%
$133000 on mortgage at 4.75%

My original plan was to knock out the Visa then roll those payment into the Discover. I got to thinking about that today and if I roll the ~$900 / month from the Visa onto the wife's auto loan I'll have that paid off by June of next year. That will free up about $270 a month and I can take that and knock out some student loans, roll that into the Discover card, the mortgage, or into my savings account.

Here's the thing right now my credit scores are around 750. I was at about 780, but I opened the discover and transferred the balance so I could save myself tons in interest. The major dings on my credit are too many installment accounts, 90% utilization on the Discover, overall high balance on my CCs, and too many inquires (had a car get totaled not long ago 3 months after buying it. Second loan hurt badly...).


So basically I know that I'm likely 1.5-2 years out from another major purchase (new home). In May of 2013 I hope to find a potential renter for 1+ years. I know I can easily get at least $1100/month for my townhouse as it's very close to the university and is 3 bedroom. That will more than cover my mortgage for the house but I'd really like to not be paying PMI when I go to rent it.

I want to have a credit score in the upper 700 to low 800 when I go to buy that bigger house. At that point my wife will likely be working less as it's very likely we'll have a child so I would put our annual income closer to the $100,000 mark (unless I work a lot of field hours then that can likely maintain around $120,000).

I'm thinking about playing the balance transfer game. right now I have until next December on the Discover. If I just pay $250/month on the Discover then I'll still have ~$6000 still on the Discover when it comes due. I will, however have the wife's car paid off in June, the Visa will have a zero balance, and I'll likely have at least one of the smaller student loans paid off come next December. I have a $30,000 line on my Visa and I'm pretty much certain I'll be able to get a balance transfer or "long term cash advance" from the Visa to cover the $6000 when the Discover comes due. I'll make minimums on that while then attacking the mortgage or saving up for a down payment.

Does my strategy sound reasonable? I'd like to eliminate all of my installment debt but my wife's student loan and my large student loan, have an excellent credit score, and about $20,000min in the bank when I go to purchase a new home. This is Option 1

Option 2 says pay off the Discover so that next December I have no CC debt and THEN start hammering out the installment debts.

What do ya'll think?

Hokie

Last edited by hokiehunter07; 09-26-2011 at 11:21 AM.
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  #2  
Old 09-26-2011, 11:54 AM
littleroc littleroc is offline
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Join Date: Mar 2011
Location: Minnesota
Posts: 334
Default Re: Newbie here, trying improve my situation.

Your on the right track man. I would definetely continue with your debt snowball method of paying off the smallest balances, gaining momentum and then using that payment and rolling it into the next lowest balance and so on. It's always a good plan to knock off all of your debt before buying a new home because that leaves you with more disposable cash in case of emergencies. Good luck!
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Old 09-27-2011, 03:06 PM
Robert742 Robert742 is offline
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Join Date: Sep 2011
Posts: 18
Default Re: Newbie here, trying improve my situation.

Option 1 sounds good. Your debt problem occurred during your schooling, and you now have the resources & will to get out of debt, so I think you will be fine. But keep an eye on your budget, and make sure you are not spending any money better used to pay off debt, and make the most of your paychecks. Put your money towards the debt other than your mortgage, and the 2 larger amount student loans, then I would work on the 25k student loan. I'm never quick to pay off low interest installment debt.

Avoid buying cars through car loans in the future, or at least until you have greatly reduced your debt.

Remember to properly fund your retirement, too,
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Old 09-27-2011, 05:53 PM
tlscott1 tlscott1 is offline
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Join Date: Sep 2011
Posts: 9
Thumbs up Re: Newbie here, trying improve my situation.

Ok...you have a great grasp on things. Here are the positives: 1) You are motivated 2) You know what you want 3) You want to make it happen!

Here is a suggestion: 1) Stop putting money towards your 401(k) right now. They may match, but it doesn't matter b/c you need to get out of debt. 2) Do you have any insurance? Buy term or utilize company benefits to buy 10x your salary (if you die your wife is screwed) 3) Pay off your revolving credit first (I would start with your discover cc first b/c it is at 0%) 4) when you get that cc paid off....start making bigger payments to your other CC and then eventually your Student loans and cars. It is important to focus on one debt at a time. 5) If you are planning on renting out your condo (which i think is a bad idea, you will need at least 6 months of an emergency fund (I was a financial planner and saw many people lose a lot of money to a bad renter). Finally, save at least 20% for a down payment on your next house. When all of your debt is paid off, start investing again.

Dave Ramsey says it best...live like no one else now, so you can live like no one else. By my calculations you could have your debt paid off in about 15-18 months if you really put your mind to it! Then you could ratchet up your savings. So, in 24 months (if you can put off the purchase of a new home for 24 months) you would have ALL of your debt paid off and probably another $30-40k in savings. It all depends on what you really want.

Travis
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