What bills to pay?

[Suzannah]

Long, advice really needed.

We received a small insurance settlement (2K), will get another 4K over the next two months (refinancing mortgage, no payment for a couple months), and I will get paid for some extra work at school at the end of February (and then again at the end of June, each time about 2K). Hubby and I have way too much debt and I would like opinions on which of them we should focus on with this extra money (which will total about 9K when all is said and done, over the next few months). This will be the last time for a long time that we will have chunks of money like this, and I don't want to be an idiot and waste this opportunity.

Main issues:

1. No savings. I'd like to put 1K in savings immediately.

2. Hubby has one HUGE credit card at big interest. 9K at 24%. Right now the payment is $384/month. He has other cards, but this one is from Bank of America, a company which should go straight to h.ell when it collapses in on itself. Hubby's work is building high-end bars for people's movie rooms, basements, etc. After the holidays and the super bowl, we are expecting that to dry up quite a bit. So my other issue is that if he loses his job and we lose 1/3 of our income (I make up 2/3), do we "waste" the 9K on a credit card that will be the first thing we default on if we get into that situation, or do we pay off the truck so we still have wheels? I am not at all interested in defaulting, but I am thinking worst-case scenario here. We aren't there yet, but it is a very real possibility. I can probably pick up some work at my school (tutoring, etc), but my school district is laying people off, too, so supplemental income may be scarce (and much sought after).


3. Truck payment. 9K to pay it off, will save us $300/month when we do. This truck also needs to have an insurance claim filed on it, $500 deductible, and the check engine light is on (the latter is nothing dramatic, but it does need to be fixed).

4. One credit card for me, $2700 at 6%.

Just FYI, credit cards are not in use at all, not for about 9 months or so, and only for an emergency.


Help me make a plan.

[LilyGrace]

Definitely put the $1000 in savings first!

After that, I'd pay off the credit card. That's an extra $384 you can apply to the car, or if you need to, use to pay other bills if your dh gets laid off. You would have the beginnings of your emergency fund to help as well.

Why? If you look on a credit calculator, you'll see that you'll end up paying almost twice as much over time when you factor in interest. That's sending an extra $9000 somewhere it doesn't need to be. If you apply the car loan money to it as well, that's still an extra $1000 you're paying them (on top of what you have already).

Having your car free and clear would be nice. Since you're worried about your financial situation I would take the money that would have gone to the card (now paid off or mostly paid off) and put it in your savings account. Later you can still choose to pay off the car early with that money or make sure you have a cushion, but the choice and the security would be there.

[SeekingJoy]

What is the APR on the truck?

[freespirited]

My advice might be unpopular, but I would put every bit of it towards the 24% cc and skip an emergency fund. If something comes up, you could use your cc if you really have to. I am guessing your truck APR is well below the 24%. If it is above 6% then of course you want to try to make extra payments before making extra payments on your own cc. But first of all, I would totally pay off the cc. I know sometimes it's tempting to think about bankruptcy but you don't want to go that route. I also hate to think of all the big money we get going to debt, but I do feel responsible. Take care of the card, then destroy it once you do have an emergency fund in place so you will NOT use it in case dh's income really decreases. That's what I would do. Actually, that's what I am doing with my freaking huge BoA cc debt. Good for you too that you will be able to pay it off so quickly. Can the truck be sold if need be or are you upside-down on it? You'll need wheels but maybe you can sell it and buy something cheaper?

[Suzannah]

I am embarrased to admit that I don't remember the APR on the truck, but I think 7%. We are not upside down at all (we actually got a really good deal), but we also need it. We have property and horses, and we need it for various things. We completely own our other car. If things got desperate we could probably sell the other car, but it would be difficult to haul hay, one bale at a time, for three horses (two of which are tax deductible, and one of which is a boarder, so please don't suggest I give them up. I waited 34 years for a horse, rescued one, then rescued the other 2 years later. I haven't bought clothes in 2 years, I don't give a damn about movies/going out/buying stuff. They are my pasttime, hobby and passion. Some on this board may adopt the "well, she doesn't really want to be out of debt" stance, but that's not true. I would give them up in a heartbeat if it was them or my family, but we're not there yet.).

[kirstenb]

Originally Posted by freespirited

My advice might be unpopular, but I would put every bit of it towards the 24% cc and skip an emergency fund. If something comes up, you could use your cc if you really have to.

I would also put everything to the CC and pay it off. Then, I would put the CC payment into savings for the next three months, so you have your $1000 EF. After that, I would apply the CC payment towards your truck to help pay it off sooner.

[Suzannah]

One of the reasons we got heavily into debt was because we did not have an emergency fund. I don't know if anyone in this discussion is familiar with horses, but a single vet call can be $500. I totally understand the rationale behind throwing it all at the CC, but with the possibility of losing a job I don't know if it's smart to have nothing saved, just in case. That's when people end up living on credit cards.

[Porcelain Interior]

No way, definitely save that $1000.

If you put everything on the credit card and something comes up how will you take care of it? The credit card. Which is what you want to avoid right?

Definitely put some money up. Then strangle your debt.

It kills your spirit and your progress to have to go back and charge an emergency, it really just makes you feel like why try, and then you fall into old patterns again.

Better to plan ahead.

[phathui5]

My advice might be unpopular, but I would put every bit of it towards the 24% cc and skip an emergency fund.

I wouldn't.

Dh has been unemployed since July and our emergency fund (fully funded) is what has helped keep our bills paid.

So I would put the $1k in savings for emergencies so you're not using credit when emergencies come up. Get all the debt paid off and get to work saving up 6 months of expenses for if you need it.