You’ll realise why the title is a little deceptive as you continue reading. Thus… I made careless purchases that led to a $15,000 credit card debt. Over 20% interest was charged on all of the cards. To address this, I took out a personal loan. That percentage is 17%. They are financing 22,591.39 ($14,998 at 17.25%). I’m making 469.34 payments, but my minimum is 374.95. If this continues, I’ll pay it off in four years. Has my choice been the right one? Is there anything else I should be doing or a different alternative I should consider? I truly appreciate your opinions. Please be kind; I know I’m in a rough place. All I want is a good forward answer. Regards!
Judging only from the details you gave, it seems like a sensible decision. It makes sense to refinance at a lower interest rate and to pay off as much of the debt as you can.
All of your additional discretionary income should be used to pay off this debt if you have no other loans with higher interest rates.
In my opinion, paying off debt should come before preparing for an emergency fund.
The key to getting out of debt and staying out is tracking your spending. I use a customized spreadsheet to record every penny I spend daily.
This method helps you see where your money is going, allowing you to make informed decisions about your spending. By identifying areas where you can cut back, you can redirect more funds towards your debt.
For example, after a few months, I noticed that a significant portion of my “eating out” expenses was on drive-thru meals. I decided to limit dining out to once a week for special occasions and eliminated fast food. This cut that category by 50%, and I redirected the savings to my debt. By being mindful of my spending, I reduced my monthly expenses by 40%.
Once your debt is down to $10,000 and you’re effectively tracking your spending, consider transferring it to a credit card with a 0% interest rate for 12-18 months and a 3% one-time fee. Use this opportunity to pay off the higher interest loan at 17%, then focus on clearing the remaining $10,000 as quickly as possible.
You apply any additional income you can to the loan, but you don’t disclose your monthly income or other expenses.
Keep a watch on your credit; if it gets better, you might be able to refinance the loan at a cheaper interest rate.
Never borrow money against an asset to pay off unsecured debt. For something that would have previously only resulted in a negative credit score mark, you jeopardise your home.
In a logical sense, sure.
In real life, be sure that your expenditures are within reason. Imagine having to manage two loans, or worse, not being able to manage any of it, once you felt comfortable once more and needed an additional $15,000.
As long as you are not using your credit card until the debt is paid off, you made the right decision. Moving ahead Donate all excess funds to debt, but retain the EF of $6,000. Is there anything you can trim to make more money out of your budget? Can you enhance your income by taking on a second job or side project? For example, pet sitting, dog walking, childcare, tutoring, or retail work? only up till the loan is settled. But keep in mind that in order to avoid having a tax bill when you file your taxes, any employer may need to withhold extra tax from you.
You’re acting appropriately. In order to save time and interest, I would advise paying as much more as you should.
You should maintain your emergency fund and avoid using it or adding to it for now.
Focus on paying extra towards your personal loan. If you haven’t already applied for a personal loan, check if you can qualify for a 0% intro APR balance transfer card to cover all or most of your credit card debt, depending on your credit score.
Whatever you do, remember that the $15K debt came from spending habits or mismanagement. Address those issues and make changes. Consider cutting up your credit cards or keeping them in a place where you won’t use them for unnecessary purchases. Many people who consolidate their debt with a personal loan end up accumulating credit card debt again because they don’t fix the underlying issues that led to their debt.