Help me spend my car payment!

[Anonymous]

OK DCUM sages. I'm about 3 pay periods away from being in the prime position to having a paid off car. I genuinely want to plow that payment of $350 every pay period into a bill, and continue not seeing that money in my checking account, i.e. it gets automatically withdrawn like my car payment does.

Chase ~ $9,400 @ 15% (this one is at its limit, so killing my credit score, I may want to bring this down 1 or 2K)
Amex ~ $4,500 @ 21%
USAA ~ $5,200 @ 16% (this was a roll over deal, so that card is literally not even activated).
Line of Credit ~ $5,000 @11% (basically overdraft protection, but maxes out at $5,000).

I'm really hoping to concentrate on the above. We're good on retirement, ok on college savings. Until July, we'll have 2 in daycare, so once the middle one heads to K this fall, we're pausing college savings. We do have some set aside for the 9 year old.

NOW, one wild card, that I originally thought about doing. I drive an '04 Volvo SUV, with almost 166K miles, but very low mileage, I only put around 25-50 miles per week. Part of me wanted to plow that $350 twice monthly into an account for a downpayment to replace that when it dies, as I REALLY don't want to shell out much for a down payment, nor have a payment.

Thinking about paying the bills until end of this year, then create the account after the new year for a car.

Thoughts? Please try not to judge the spending. It's not all me or junk.

[Anonymous]

Anonymous wrote:OK DCUM sages. I'm about 3 pay periods away from being in the prime position to having a paid off car. I genuinely want to plow that payment of $350 every pay period into a bill, and continue not seeing that money in my checking account, i.e. it gets automatically withdrawn like my car payment does.

Chase ~ $9,400 @ 15% (this one is at its limit, so killing my credit score, I may want to bring this down 1 or 2K)
Amex ~ $4,500 @ 21%
USAA ~ $5,200 @ 16% (this was a roll over deal, so that card is literally not even activated).
Line of Credit ~ $5,000 @11% (basically overdraft protection, but maxes out at $5,000).

I'm really hoping to concentrate on the above. We're good on retirement, ok on college savings. Until July, we'll have 2 in daycare, so once the middle one heads to K this fall, we're pausing college savings. We do have some set aside for the 9 year old.

NOW, one wild card, that I originally thought about doing. I drive an '04 Volvo SUV, with almost 166K miles, but very low mileage, I only put around 25-50 miles per week. Part of me wanted to plow that $350 twice monthly into an account for a downpayment to replace that when it dies, as I REALLY don't want to shell out much for a down payment, nor have a payment.

Thinking about paying the bills until end of this year, then create the account after the new year for a car.

Thoughts? Please try not to judge the spending. It's not all me or junk.

That is dumb. Not ever having a car payment again is a great idea in theory, but not if you're prioritizing avoiding a potential 3% interest future debt by saving for a downpayment and hanging onto 21% interest current debts to do so. You have $25k in high interest debt, that's where you need to put your money. Start with the Amex.

[Anonymous]

Holy shit that's a lot of credit card debt. Start with the highest interest. Do not even think of getting a new car until most of that is gone.

[Anonymous]

This is tough. I'd be tempted to bring the first one down as you said, for a month or two. But honestly what works for most people is snowballing - you can google.

Another option, honestly, to consider is getting a HELOC or another type of loan, bundling all of these at a lower rate. The rates are very high.

Once the 5yo leaves daycare, put all of that daycare money toward debt. I may be in the minority, but don't believe much in college savings while you are in debt.

[Anonymous]

Point of clarification. I have zero plans to get a new car. Sometimes life doesn't work out that way once you're driving a car that was born when Colin Powel was still our Secretary of State.

[Anonymous]

You must pay off that credit card debt. Do you have any way to refinance it? Can you take a loan against your 401k or pension savings?

[Anonymous]

Start with the AMEX as its the lowest balance and highest interest rate. When that is paid off put that whole amount towards the next highest interest rate, etc. Its call the snowball method. I would also pause your college savings until you get all of your debt paid off. You are paying more in interest than you are making on your investments.

You also need to figure out how you got so much consumer debt in the first place so that you don't keep taking on more debt.

[Anonymous]

Pay off the highest interest one first with the entire payment and then go to the next one.

[Anonymous]

Yes, I've seen a lot of people have success with the snowballing method: list those credit cards lowest to highest balance, pay off the lowest balance first, then move onto the next. So, throw that $350 at the Amex first! One caveat, do you have what is sometimes called a "life happens" fund? This is a smallish savings account that you can use for things like car repairs or plumbing emergency, so you don't have to put those on the credit card. If you don't have that account yet, I would say, throw an extra $250/month at the Amex and put $100/month in a good online savings account like Ally.com. When the Amex is paid off, put all of the money you were paying monthly toward the USAA card. Good luck, you got this!

[Anonymous]

Also, in the future don't buy a car with a $350/mo payment when you are $25k in the hole.

[Anonymous]

Anonymous wrote:Point of clarification. I have zero plans to get a new car. Sometimes life doesn't work out that way once you're driving a car that was born when Colin Powel was still our Secretary of State.

Sure. I drive a 2002 Civic with a similar amount of miles. If you only drive it 25 miles a week that Volvo can last you several more years. If something happens to the Volvo you replace it was a similar car (old but reliable model with some life left). You do that until you have a handle on the credit card debt. All available cash should be going towards that debt until it's gone because of the incredibly high interest rates you are paying on that money.

Once the credit cards are paid off, you think about other goals. Like saving for a car down payment or college.

[Anonymous]

10:14 again. The people saying to pay them off in order of interest rates are correct in terms of explicit money value, BUT there is a real psychological benefit to the snowballing (paying the lowest balance first) that keeps people motivated to continue paying down debt. Luckily (?) in this case the lowest balance is the highest interest, so either way, Amex first.

I know you mentioned your credit score, but try not to think about that. It really only matters if you need to take out additional loans, which is really only a last resort until that cc debt is gone.

[Anonymous]

10:14 again. The people saying to pay them off in order of interest rates are correct in terms of explicit money value, BUT there is a real psychological benefit to the snowballing (paying the lowest balance first) that keeps people motivated to continue paying down debt. Luckily (?) in this case the lowest balance is the highest interest, so either way, Amex first.

I know you mentioned your credit score, but try not to think about that. It really only matters if you need to take out additional loans, which is really only a last resort until that cc debt is gone.

[Anonymous]

OP how much is daycare for the 5yo per month?

[Anonymous]

Here's a good post about snowballing to get you started OP:

https://www.daveramsey.com/blog/get-out-of-debt-with-the-debt-snowball-plan