After a tough year dealing with depression and a serious gambling addiction, I’m finally on the road to recovery. However, I’ve found myself burdened with about $61,100 in high-interest, unsecured debt.
I’m fully committed to resolving this debt as quickly as possible and am actively searching for a part-time job to help speed things up. I’ve been exploring various options, such as credit card hardship programs and lump-sum settlements, but I’m unsure which might be the best fit for my situation. Ideally, I want to minimize long-term damage to my credit, so I’m hoping for some advice based on your experiences.
Here’s a bit about my current situation:
- I’m 26 years old.
- I have a Roth IRA with around $31,000, which I’ve been contributing to for just over 5 years.
- My credit score is currently 520. While I’m current on all my payments, my credit utilization is at 100%.
- I’ve moved back in with my parents, which helps keep my living expenses low, though I’d like to move out soon.
- I have $0 in savings.
- My monthly take-home pay is about $4,200.
- My debts include $11,514 in personal loans and $49,594 in credit card balances.
- After covering minimum payments and basic expenses, I have roughly $575-$900 a month to put toward my debt.
I’m considering withdrawing from my Roth IRA to either:
A) Settle all my credit card debt for as little as possible and pay lump sums (though I’m unsure how this will affect my credit), or
B) Pay off all my personal loans and the two smallest credit card balances to free up monthly cash for tackling my largest credit card balances.
I’m thinking about using the Roth IRA funds because, although it would be a setback for my retirement, I’d prefer to start fresh and reduce my stress now. Plus, once I’m out of debt, I can start contributing to my Roth IRA again to rebuild it.
I’m really unsure about the best approach and where to start. I’m committed to working through this and never wanting to handle this much credit again. Any advice you can offer would be greatly appreciated.
Here’s a link to my debt spreadsheet: Debt Spreadsheet
heyy! I’ve been in a similar situation, and I have some encouraging news: you can definitely work your way out of this. The downside is that it will involve some sacrifices.
First off, your car payment isn’t listed here, but it’s a part of your debt and is affecting how quickly you can tackle everything. I suggest selling the car, paying off the loan, and switching to a cash car. This could increase your monthly extra funds to $1,000-$1,500.
To handle this debt, there are two approaches:
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Mathematically, make minimum payments on all debts and focus on paying off the lowest balance with the highest interest rate first.
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Psychologically, use the snowball method. Start by paying off the smallest debt first (like the Upstart loan), then move on to the next smallest. This can help build momentum and motivation.
From personal experience, you’re likely 2-3 years away from having $3,000 a month in uncommitted income. If you adopt a frugal lifestyle now, it’ll become second nature, and you’ll see your financial situation improve quickly.
Regarding your Roth IRA, I wouldn’t recommend using it unless absolutely necessary. If you do decide to withdraw, consider waiting until you have $30,000 or the tax-free amount you can withdraw, then use that to pay off your debt.
The bankruptcy advice is bad, in my view. I would speak with two or three older, close friends who have already tried it. Those who are financially wealthy presently are unlikely to advocate it.
In 2017, I filed for bankruptcy with far less credit card debt, but even with minimal payments, I wasn’t making any progress. It’s a little over a thousand dollars to speak with an attorney. Just when I was about to pay it off, I kept my car. I obtained credit cards in a few years to raise my score. With my credit score in the 700s, I was able to purchase a house a year and a half ago, and my bankruptcy is still visible on my record.
Anyone who advises you to file for bankruptcy is providing you bad advice. Since you are still young, take the blow to your Roth and pay off some of this debt before tackling the remaining balance. Completely feasible.
Use Mint Mobile to reduce your phone bill. After then, debt mounts. Work your way up to the highest bill by attacking the smallest one first. You can absolutely get out of this situation, but you’ll have to give up your life for a while in order to pay off some of these obligations.
I have a related query.I am in debt $28,000 in California. I have a fifteen thousand dollar debt on one credit card that I entered into a credit card hardship program for. Can I stop making payments and negotiate a lower payment, or will they sue me and garnish my wages?
I’m not even sure how you got your initial $50,000 in credit. What was the actual interest amount that they charged you for that balance last month?