Hi thanks for reading, posting for a friend who doesn’t have Reddit.
This friend (32 y/o) has a bit of CC debt (they’ve stopped contributing to it) and is looking for guidance on the best direction to go.
They have one balance transfer credit card debt in the amount of $7,166 that ends July 2023. The minimum monthly payment is $144 which is what they’ve been paying. Their concern here is that that minimum amount isn’t going to get them to a zero balance by next July, but Discover said they’d then only owe interest on the amount left (12.74-23.74%).
They have a second credit card with 22.99% APR and a current balance of $6,680.
They have a final credit card with 23.24% APR and a current balance $1,190.
They can comfortably contribute $500-600/month towards their debt, but aren’t sure where to allocate that (to one card, split among all 3, etc.). They are considering getting another balance transfer card for the other two credit cards and then focus on the current balance transfer one since the $600 a month would get that paid off by July 2023. They also have a 401(k) in the amount of $12,000 that they are considering withdrawing to pay off the bulk of the debt (they are aware of the 10% hardship penalty).
If additional details are needed, please let me know. Thank you in advance for responding!
Pay minimum on everything and allocate the rest to the highest interest account. If they can’t pay off the 0% balance transfer before the promotion ends they can explore getting another balance transfer when the time comes.
Would they be able to get a personal loan to consolidate the debt?
>They can comfortably contribute $500-600/month
Assuming a 2-3% minimum balance, they are barely covering the minimum. They need to up their income and/or cut their expenses to free up cash to pay the debt.
>They are considering getting another balance transfer card for the other two credit cards and then focus on the current balance transfer one since the $600 a month would get that paid off by July 2023.
Balance transfers only work if you can actually pay them off. A new BT card would still have a monthly minimum so they won’t be able to put all $600 to the Discover account.
>They also have a 401(k) in the amount of $12,000 that they are considering withdrawing to pay off the bulk of the debt
That wouldn’t pay off the “bulk of the debt” it would pay off about 50%. (The 10% penalty is **on top of** taxes, assume 70¢ on the dollar.) This should only be considered *after* the friend has picked up a 2nd/3rd job; stripped their budget down to rice, beans, and water; sold their non-essential items on eBay; and started donating plasma. At that point, they should consider it and realize that retirement savings should not be used as a piggy bank and leave the money alone so their future self doesn’t resort to eating cat food.
Try using either the Avalanche or the Snowball method to bring down your debt. There are YouTube videos that have extensive information on these two methods.