Tips/strategies to managing my debt

Question

I'm currently a 22 year old who's trying to get my debt in order.

I currently hold a full time job making roughly 66k a year however I feel like nearly every paycheck I have goes to debt.

I also have a second job but it's more of a church job. I work 16 hours per 2 weeks for $18

I currently have a CC debt totaling in $1768:

• CC - $865 at 28.24% APR
• CC2 - $314 at 32.00% APR
• CC3 - $455 at 29.99% APR
• CC4 - $133 not sure what the APR is

I then have a personal loan at $1824 at 21% APR

And lastly a upside down car loan which is at 13k with a 21% APR

This totals my debt to about 20k.

What strategies/methods would you financial wizards recommend I should use to go upon tackling this? I'm aware of the avalanche and snowball method however I feel they really aren't making a dent with this debt.

I also am trying to build some investments but not sure where to start. I only contribute to a high yield savings account. If I could get some advice on that, that would be great!

Thanks in advance!

Edit: I have been reading through everyone's responses and appreciate them all. I come to realize that yes I have a spending problem and alot of my unaccounted funds are going to short term rewards (junk food, hobbies, etc.) I've actually made a budget and found out alot of my debt could be paid in less then a year but I never realized until now. I will take the knowledge I learned here and always keep it in mind. Thanks again!

Answer 1

There is no magic bullet for debt reduction. You owe money and the only way to get more is to:

• Reduce expenses
• Increase income

Some back of the napkin math on $66k annually and 25% payroll deductions (taxes, insurance) would net you 66,000*0.75/12 = 4,125 a month. In the question and comments your debt service is 156 (CC) + 88 (personal loan) + 430 (car) + 267 (insurance) + 1000 (rent) = $1,941 which is less than half. That means you have over $2000 a month going "somewhere", do you know where it's going?

The best answer is to get on a budget and don't take on more debt.

1. Cut up all credit cards. The interest rate will eat you alive. Only pay cash or with debit.
2. Pull up your statements and categorize expenses for the past month. How much did you spend eating out? On nonsense groceries like cookies and calorie dense snacks that you don't need? On streaming services? Reduce your expenses.
3. Sell any junk you have laying around that you don't use and is worth at least $10 to somebody on Facebook.
4. Track expenses so you don't get off track again.

I would recommend paying off the credit cards first since they are such a low balance. You could easily do this in 2-3 months unless you have large regular expenses you didn't tell us about.

I'm torn regarding the car. These days $13k is not that much for a car. I see 2014 Corollas with 110k miles going for $13k online. Sure you can search around for a better deal but I feel that any friction costs (taxes, fees) will not make it worthwhile. I would say just ATTACK that car loan once the credit cards are gone. You never ever want to be upside-down on a car loan.

As far as investing, I would only put in funds that are matched by an employer in a 401k or such (50%-100% return instantly). Any other investing is not going to regularly do better than 21% on a loan.

If you can put $1000 a month towards the debt you will be debt free in less than two years. $1500 a month and it's only 14 months. I know that sounds like a long time to a 22 year old, but you have WAY more years of your life beyond that and your future self will thank you for taking this situation seriously.

Answer 2

There's not an easy solution - you are going to have to sacrifice to get things paid off. The more you sacrifice, the faster you can get things paid off.

21% is an insane car loan. Even though you're upside down, I would strongly consider selling the car and paying off the remainder with a personal loan if you can't pay it from what you have in savings. Then buy a crappy car that will last until you can get out of debt. Plus the insurance will be a lot cheaper.

The next step is to cut expenses to the bone. No more eating out (get used to Ramen noodles), no more trips, movies, etc. Every dollar you spend is money you could be spending on debt, so you're essentially borrowing everything you spend at this point.

Write down your obligatory expenses in priority order. Food and shelter are first. Then utilities (streaming services are not a utility, they are a luxury), then transportation (car+gas+insurance).

Once you have all of your expenses fixed, don't spend any more than you absolutely have to on them. Every other dollar goes to paying off debt. Start with the smallest cards first to get them out of the way. Then tackle the next smallest loan and work your way through until everything is paid off. Pay only the minimum payment on everything else.

If you want quicker progress, you need to increase your income. Look at delivery services, part time jobs, overnight jobs, anything to increase your income.

I'm aware of the avalanche and snowball method however I feel they really aren't making a dent with this debt.

This is common with the avalanche method if you focus on higher balance debts because they have a higher interest rate. If you see everything as one big pile it's harder to sense progress. You will get a better feeling of progress if you focus on the lowest balance first regardless of interest rates. Your interest rates are all so high that focusing on rate won't matter nearly as much as paying as much off each month as you can, and getting the satisfaction of knocking low balances out will help with that.

I also am trying to build some investments but not sure where to start. I only contribute to a high yield savings account.

Unless the "high yield" is more than 21% then there's no need to put any more money in it than you would need to get through an emergency that requires immediate cash. When getting out of debt, that needs to be as small as possible, maybe only $1,000 or so to whether any emergency that otherwise would be paid for with debt.

Your "investing" at this point is to pay off the debt, which has an instant return of 21%. You're not going to do any better than that in the market.

Answer 3

I also am trying to build some investments but not sure where to start. I only contribute to a high yield savings account. If I could get some advice on that, that would be great!

I'm going to show you an investment that pays over 30%/year, attracts no taxes, and is much much safer than anything else. It doesn't involve the stock market, or doing anything illegal.

Investment works by moving money from lower-earning uses to higher-earning uses. And in your case, the repayment of debt is this excellent investment.

Let's say you have $300 in a high yield savings account earning 5% interest. In a year, it will earn $15. Then, you'll have to pay income taxes on this interest, say $3. That leaves you with $12.

Using that $300 to pay off the highest rate CC (in this case, CC2, $314 at 32% APR) will save you 0.32*314 = $124.80 in CC interest payments in the next year. Compare that with the $12 you could net leaving it in that "high interest" savings account. Simply by switching that savings money into paying off that one card, you can have $112 more next year than you would have otherwise. Compounding? Almost. The year after that you will also have another $112, etc.

Some people think you shouldn't drain your savings to zero, or almost zero, to pay off credit. But the math definitely favors it.

Making cc payments as soon as you have your paycheck, instead of when they are absolutely due, will also help. Always put more on the highest rate card.

The scenario where near-zero savings is an issue is the 'major emergency'. I don't mean a car repair -- that would go on the credit card. A major emergency is you lose your job, and you can't pay the minimum on your credit card bills. Your CCs might be suspended for new charges. How then will you afford food, gasoline, or internet service for the next remote job interview? Those are valid questions. If you have that covered somehow (Bank of Mom; "Apartments" by Dad), though, you can see that the math favors paying off the credit cards big time.

What other investment pays 30%, has almost no risk, and doesn't attract taxes? Sometimes employer matching on retirement plans, etc., are a really good deal. There's a few others. But for you, now, paying off that debt looks delicious.

Answer 4

The APRs you are paying are an act of war.

As such, I would place myself on a "war footing" and scourge life expenses. I don't walk in the shoes of a 22-year-old, so I don't 100% appreciate 22 year old sensibilities, but $66,000/year should P-L-E-N-T-Y to slaughter that debt in short order. Note I'm not overly concerned about the car loan and will largely ignore that because it's at a lower interest rate (relatively) and is secured. Focus on the consumer debt, but feel free to continue your momentum to knock down the car loan too. If you intend to keep the car, it doesn't matter if it's underwater, just don't crash it!

• if you're doing ANY delivery (DoorDash etc.) I know that's a very seductive/easy thing to do, but cut it out entirely. For groceries I make heavy use of Target's $1 curbside delivery service via their app. The app watches your approach and tells them when to bring your goods to the curbside, so it's already there when you arrive.
• Bad habits - gambling, lottery, or Free2Play gaming which is riddled with "Pay2Win" mechanics that can drive you to hundreds of dollars a month (which also makes very miserable game mechanics, like gacha or inserting delays unless you pay). Contrast with games that charge up front or a flat rate subscription, like World of Warcraft's $15/month. Speaking of that...
• I have A LOT of $10-ish/month services ankle-biting me down. Everything from Netflix to Panera's $13 "free drink club". Mercilessly slaughter those. With TV channels, have one at a time, devour their content, then cancel and move to the next. These matter. $15/month is $180/year.
• Cable TV - kill it dead, it's obsolete. Internet - switch providers occasionally, because they creep the price up over a few years if you don't. I don't make the rules. Storage units do the same thing, Public Storage raises everyone's price 30% a year.
• Cell phone plans - strip it down, except perhaps take unlimited data if it means you can
• Watch for any expense that seems normalized to you, but is it really normal?
• Your own apartment is itself a luxury. I preferred housemate shares at your age and salary to keep debt down.

Beating down that stuff will give you a gap you can start applying to the credit cards. Snowball vs avalanche: One is all math/science: pay the highest interest first and be done slightly cheaper and sooner. The other is emotion driven, pay the smallest card first so you get to your first experienced win sooner as an aid to keep you motivated.

If the cards have a "minimum interest charge" e.g. your calculated interest is 3 cents but they make that a $5 minimum, then "smallest first" always wins.

I also am trying to build some investments but not sure where to start. I only contribute to a high yield savings account.

Holy smoke! At those interest rates? Your best possible investment is paying off that debt.

Your savings would need to pay, like, 45% to be a better investment than paying down debt.

Answer 5

From a European point of view, those APR's are ridiculously high. They are the reason you are not seeing the loans shrink and you're paying yourself blue on interest. I have a mortgage at 4%. My car is 14 years old and when I bought it new, I paid half up front and the other half I had a car loan at 4%. I repaid that loan within a year and I'm still driving the same car debt free.

You already got great advice, but I'd like to repackage them into mantras to live by.

• Credit cards are a very expensive, repay all the highest APR's first and faster than required, 3 months of 1200 wipes your credit card debts clean. another 2 months wipes your personal debt.
• Debt is for bridging the gap between needing something and having the money for it in the near future. Best not to take on debt, but sometimes it makes sense
• Debt covered by collateral will be cheaper
• A Mortgage is a large debt, but the value of an apartment or house to live in saves rent and with a bit of maintenance and luck increases in value (with exceptions!)
• Cars and phones are luxuries that depreciate over time, they lose value
• Use the stuff you have for as long as you can.
• Buy only what you need. There are cheaper alternatives for an iPhone
• Avoid debt for luxuries you can't afford, Luxury items have little collateral value and APR's will be high
• You pay double for any luxury item bought on credit
• Interest will compound, the longer you don't repay the debt
• Future you will have to deal with the consequences if you don't
• You should have enough liquidity (like cash) to pay for essentials like food and housing, everything else should go to down payments
• Keep track of your income and spending and decide what is worth it, for you
• Investments are for surplus cash, money that doesn't hurt if you lose it
• Safe investments yield little but are risk free
• Risky investments yield a lot, but you can lose everything
• Gambling is a sure way to lose everything (more than just money)

Answer 6

There are 5 answers, and most are pretty good. However, first I would like to ask how much is this car worth to you? Would you answer about $900,000? Because you are driving nearly a one million dollar car. How? $430 invested per month for 30 years at 10% (Basically and S&P 500 fund) comes out to about 900K.

I would also say your interest rates do not matter much and can actually work for you. Why? It motivates you to pay them off quickly. It is not unreasonable to pay off all your credit card debts in one month. The second month should be dedicated to paying off your personal loan.

Once you get good at paying off debt, the car loan will go quicker than 6 months. I bet you can do it in 4.

Doing all that might require you getting a second job or working overtime, but it is worth it. How will it feel if you wake up 6 months from now with no debt?

You have a great salary at such a young age. You could find yourself very wealthy or broke most of your life. Your behavior defines this. Its not unreasonable to commit to no debt except for maybe a mortgage for the rest of your life. You work far too hard to give all your money to banks.

Also I'd cut up your credit cards. Live off of debit cards until you have a nice emergency fund built up, and have started investing.