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Unread 05-08-2013, 02:12 PM   #1
Achped
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What to do with my debt? Pay off credit cards? Motorcycle? Save??? Help...

I'm so confused right now guys. I was hoping to get some advice:

Right now I have $4000 ($5000 limit) on Credit Card 1. It is interest free for about more 10 more months.

I have $3275 on Credit Card 2. It is not interest free. 16% interest rate

I owe $5,850 on my motorcycle. It is 9.9% interest. I bought it used so basically I'm getting robbed. My credit score is a 748.

I have $10,500 right now completely uncommited. I'm in college and my savings is not what I'd like it to be but its decent. At any rate, I will not dip into it under any circumstances. My parents have even less money than me, so "hitting them up if things get rough" is not an option. I live alone and pay all my own bills so I must keep a reserve just in case. My savings will cover me for 1 month right now.

This is all the debt I have. I own my car and don't own any property or student loans (The GI Bill was the one thing my recruiter didn't lie about). By the end of the year I will have enough to pay off all of my debt.

My question is what should I pay off right now? The 16% interest rate is higher but the balance is lower so the interest works out to be almost the same as the bike.

I could pay off the bike and the 16% CC but that only leaves me ~$1250 for savings. I also don't like the idea of having a maxed out CC, even if I have another one for emergencies and even though its interest free. I could pay off the bike and pad my savings account quite nicely but then I'd be paying on two almost maxed out credit cards. I could pay off both credit cards and keep paying the bike note but then I'd be paying that high interest rate.

What saves me the most money and/or puts me in a better financial situation?



TL;DR

$10,500 uncommitted in cash.

$5,850 Motorcycle note at 9.9%
$4000 Credit Card #1 at 0% (for 9 more months) -$5000 limit
$3275 Credit Card #2 at 16% - $5500 limit

What should I do with my money?


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Unread 05-08-2013, 02:20 PM   #2
PM Thor
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Pay off the highest interest first. Even if you owe more to something else, you are losing more in terms of accrued interest to the highest percentage.
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Unread 05-08-2013, 02:34 PM   #3
prjohnson
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I'd pay off the motorcycle. If things ever get bad you can always sell the bike & pay other things. At least that's how I've always treated my bikes. I'm 31 & have bought & sold eight bikes. Now I always have two bikes & if times get tough, one gets sold. I'll pay off what I need to & start saving for another.
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Unread 05-08-2013, 02:53 PM   #4
BigRedDog02
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Pay off the debt that is earning interest. Look up Dave Ramsey and his book "Total Money Makeover". Sometimes it helps to pay off a smaller loan first to get the motivation going. Its feels great when you put that final payment in on a loan.
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Unread 05-08-2013, 03:35 PM   #5
festerw
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Pay off the bike and card 2, you won't have as much savings but you'll be closer to debt free.
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Unread 05-08-2013, 03:42 PM   #6
PCB
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As others have said higher interest first however make sure you can also afford $400/mo to pay off credit card #1. I am sure the interest rate on that one will be big.
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Unread 05-08-2013, 04:22 PM   #7
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Figure out your monthly expenses and put aside 3-4 months of that as a safety net. Take the rest and pay of credit card #2, if you are not upside down on the bike then sell that. Then start chipping away at credit card #1 (divide total balance by months remaining, that's your monthly pay off. When you can, pay more).
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Unread 05-08-2013, 05:49 PM   #8
Indy
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Sell the bike to start.

Look at it this way. 10k in the bank will net you about 1.50 a year in the bank.

Getting rid of the bike will probably save you a couple hundred a month. That money alone will probably pay the other bills. But your biggest bang will be to apply it directly to the debt with the lowest balance. Once its paid off, apply both saved payments to the next. You can work your way out of all debt without changing your lifestyle.


Being debt free today lets you have better toys tomorrow.
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Unread 05-08-2013, 06:58 PM   #9
0IIIIIII0
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Quote:
Originally Posted by Indy
Sell the bike to start.

Look at it this way. 10k in the bank will net you about 1.50 a year in the bank.

Getting rid of the bike will probably save you a couple hundred a month. That money alone will probably pay the other bills. But your biggest bang will be to apply it directly to the debt with the lowest balance. Once its paid off, apply both saved payments to the next. You can work your way out of all debt without changing your lifestyle.

Being debt free today lets you have better toys tomorrow.
X2


I was in a similar situation to you just a couple years ago. I ended up paying off everything and getting completely debt free. I've since sold my bike and am now living completely on a cash basis.

The peace of mind that comes with not having monthly commitments is hard to describe. I only need to make enough to cover rent and utilities every month to survive. That's a very comforting place to be when you're in my industry and work seems to dry up overnight leaving in you unemployed through no fault of your own.


Also, the lesson I learned was that you never finance toys. Not worth it.
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Unread 05-08-2013, 07:01 PM   #10
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As much as I know you'd hate it, you need to pay off all the debt you can and put money into savings once you're all paid off. Here's why I say that. Your interest rates on those loans are ridiculous. Who are those loans through? Being a service member you can usually get better rates than most, ESP with that credit score.

Anyway. You are paying higher interest rates than your ever gonna get on dang near any investment, savings or otherwise. You'd be costing yourself money putting it into savings. Your savings will be earning at 1%(optimistic) and you are paying on 9% in your least expensive loan. 1% of 10k is less than 9% of your loan amount. Your other loan is obviously even worse. Pay off as much as you can of your highest interest loan first. Then pay off as much as you can of your next highest interest rate loan.

That's the smartest thing for you to do.
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Unread 05-08-2013, 08:17 PM   #11
laybackman
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Quote:
Originally Posted by Achped View Post
I'm so confused right now guys. I was hoping to get some advice:

Right now I have $4000 ($5000 limit) on Credit Card 1. It is interest free for about more 10 more months.

I have $3275 on Credit Card 2. It is not interest free. 16% interest rate

I owe $5,850 on my motorcycle. It is 9.9% interest. I bought it used so basically I'm getting robbed. My credit score is a 748.

I have $10,500 right now completely uncommited. I'm in college and my savings is not what I'd like it to be but its decent. At any rate, I will not dip into it under any circumstances. My parents have even less money than me, so "hitting them up if things get rough" is not an option. I live alone and pay all my own bills so I must keep a reserve just in case. My savings will cover me for 1 month right now.

This is all the debt I have. I own my car and don't own any property or student loans (The GI Bill was the one thing my recruiter didn't lie about). By the end of the year I will have enough to pay off all of my debt.

My question is what should I pay off right now? The 16% interest rate is higher but the balance is lower so the interest works out to be almost the same as the bike.

I could pay off the bike and the 16% CC but that only leaves me ~$1250 for savings. I also don't like the idea of having a maxed out CC, even if I have another one for emergencies and even though its interest free. I could pay off the bike and pad my savings account quite nicely but then I'd be paying on two almost maxed out credit cards. I could pay off both credit cards and keep paying the bike note but then I'd be paying that high interest rate.

What saves me the most money and/or puts me in a better financial situation?



TL;DR

$10,500 uncommitted in cash.

$5,850 Motorcycle note at 9.9%
$4000 Credit Card #1 at 0% (for 9 more months) -$5000 limit
$3275 Credit Card #2 at 16% - $5500 limit

What should I do with my money?
Pay off #2 & #3 debt fully. Dump the rest on #1 debt. Pay off #1 debt ASAP. Do not buy anything you want for five years.

Only buy what you absolutely need during that time. Five years from now you will be buying a home and have a good DP.
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Unread 05-08-2013, 09:01 PM   #12
91YJ4X4
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First problem I see is that you believe that you own 10k cash "uncommitted". In fact you have 13,125 in debt and 10k in cash, therefore you are 3125 in the hole.

Whatever savings that you think you have is actually the banks money. If your savings is over 3125 the pay off the debt and start fresh.

Otherwise, sell the bike and pay off everything you possibly can, leaving only the 0% with a balance. Then work your *** off over the next 9 months until it is paid off.
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Unread 05-08-2013, 11:21 PM   #13
robtco99
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I agree with paying off the bike and sell it (great time of year to sell) and pay off both credit cards, starting with the high interest one. After the high interest credit card is paid off cut it up.

Work hard and you can be debt free and then pick up a bike for cash this fall or next spring.

I would recommend looking up Dave Ramsey and seeing what being debt free is all about. It literally changed my life...
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Unread 05-09-2013, 01:02 AM   #14
Puck81
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Quote:
Originally Posted by BigRedDog02 View Post
Pay off the debt that is earning interest. Look up Dave Ramsey and his book "Total Money Makeover". Sometimes it helps to pay off a smaller loan first to get the motivation going. Its feels great when you put that final payment in on a loan.
This is the best info right here. The "Total Money Makeover" will offer you the insight to how to reach your debt goals. With that in mind, be agressive in paying off high intrist rate loans.
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Unread 05-09-2013, 07:02 AM   #15
Achped
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Quote:
Originally Posted by 91YJ4X4 View Post
First problem I see is that you believe that you own 10k cash "uncommitted". In fact you have 13,125 in debt and 10k in cash, therefore you are 3125 in the hole.
By uncommitted I meant not needed for bills or urgent expenses right now. I know its not truly uncommitted - otherwise I would've put in a "Blow it all on a vacation" option.

Quote:
Originally Posted by prjohnson View Post
I'd pay off the motorcycle. If things ever get bad you can always sell the bike & pay other things. At least that's how I've always treated my bikes. I'm 31 & have bought & sold eight bikes. Now I always have two bikes & if times get tough, one gets sold. I'll pay off what I need to & start saving for another.
This was my mentality going into this. If I pay off both CC's I can't sell the credit card to fund my rent if I get hit with some hard times. (I can't pay my rent with a CC either)

As others have said about selling it - I owe $5850 on the bike and I have a paper offer from a local dealership saying they will give me $6,000 for it right now. Blue book on it in a private sale is ~$7500 and as robtco99 pointed out, it is a great time of year to sell.

But...this bike is a bit more than a "toy". Its pretty much my daily driver unless its raining. I've put 8,000 miles on it this year alone. Thats what makes it so difficult to sell even though it makes total financial sense. I've babied it, taken great care of it. It has a full warranty for another 18 months or so. It'd be a very difficult sell but having that debt wiped clean is very appealing. I need to sit down and think about that.

I seem to be under this false assumption that it somehow saves me money because it gets 45 MPG and a warranty even though $6,000 pays for a lot of gas and car maintenance.

I could sell the bike, pay off all my debt and still put a couple thousand dollars in savings.

Quote:
Originally Posted by PM Thor View Post
Pay off the highest interest first. Even if you owe more to something else, you are losing more in terms of accrued interest to the highest percentage.
You know, I'm an accounting major, I should've known this already.

Quote:
Originally Posted by PCB View Post
As others have said higher interest first however make sure you can also afford $400/mo to pay off credit card #1. I am sure the interest rate on that one will be big.
Yeah. 21%. But this is not an issue and I know it will be paid off by September-ish at the latest.
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