Stuck with $5k debt… high interest keeping me from making progress

Debt Management
1

I know $5k isn’t a crazy amount of debt, but the past 7 years have been rough. I wasn’t able to work because of health issues, and now that I finally have a job, I’m only making $500-600 a week.

I owe $5k, and the interest alone is $90 a month. My total expenses are around $1500 monthly. Last September, I called Chase, and they put me on a hardship program for five months. It cut my minimum payment in half, but after it ended, I realized it messed up my credit. My score dropped from 760 to 578, and now I can’t even get approved for a balance transfer.

So what are my options? I don’t make enough to aggressively pay this down, my credit is trashed, and I feel stuck. Any advice?

2

If you make $500 a week and your expenses are $1500 a month, where’s the extra $500 going?

3

Blair said:
If you make $500 a week and your expenses are $1500 a month, where’s the extra $500 going?

I don’t have any savings yet. I only started working two months ago, so I’m trying to build up 1-2 months of expenses before throwing everything at debt.

4

@Chen
Nope. You need to focus on paying down the debt first. Keeping money in savings while paying 30% interest on a credit card is just throwing money away.

5

Clove said:
@Chen
Nope. You need to focus on paying down the debt first. Keeping money in savings while paying 30% interest on a credit card is just throwing money away.

He still needs some emergency savings first. Otherwise, if something happens, he’ll just go deeper into debt.

6

@Ren
He’s already in an emergency. His credit took a huge hit because of missed payments. If he focused on knocking down the debt now, he’d be out of it in less than a year and THEN he can build savings.

7

@Clove
I get what you’re saying, but his credit is already trashed. A few months of saving first won’t make things worse. At least he’d have a cushion to avoid future debt.

8

Ren said:
@Clove
I get what you’re saying, but his credit is already trashed. A few months of saving first won’t make things worse. At least he’d have a cushion to avoid future debt.

He had months where he could’ve put extra cash toward the debt but didn’t. That’s why he’s still stuck. He needs to pay this off ASAP instead of waiting for things to magically improve.

9

You’re making $2000 a month and only spending $1500. That leaves $500 extra. Even after the $90 in interest, you should have at least $400 left to throw at the debt.

Are you still using the credit card?

10

@Peyton
No, I stopped using it. But I have zero savings right now, so I’m trying to build up 1-2 months of expenses before making big payments. Feels risky to have nothing in my account.

11

Chen said:
@Peyton
No, I stopped using it. But I have zero savings right now, so I’m trying to build up 1-2 months of expenses before making big payments. Feels risky to have nothing in my account.

Paying 30% interest is worse than having no savings. You’re losing more money keeping the debt around than you’d be saving.

12

You’re saying you need savings, but keeping debt at high interest isn’t really saving anything. Pay it off first, then build savings.

13

You’re bringing in $2000-$2400 a month, and you’ve got at least $500 extra after expenses.

If you throw all of that at your debt, you’ll be done with it in less than a year. Just start now.

14

Clove said:
You’re bringing in $2000-$2400 a month, and you’ve got at least $500 extra after expenses.

If you throw all of that at your debt, you’ll be done with it in less than a year. Just start now.

If I do that, I’ll have zero emergency fund. Is there any way to get this interest lowered? Would closing the card help?

15

@Chen
Don’t close the card. Your credit is already messed up, and closing it won’t help. Focus on paying it down.

16

@Chen
You need to clear the debt first. Then build an emergency fund. If you do it the other way around, you’ll just end up stuck.

17

Fallon said:
@Chen
You need to clear the debt first. Then build an emergency fund. If you do it the other way around, you’ll just end up stuck.

Will the interest drop if I make a big payment? Like if I put $1500 toward it, will the interest still be $90?

18

@Chen
Yeah, interest is based on how much you owe. If you put $1500 down, your next interest charge will be lower.

19

The only way out is to work more and pay it down. You don’t have enough money coming in to keep delaying this. Cut all extra spending and focus on knocking this out.

20

Look into getting a consolidation loan. It might help lower the interest.