At A Minimum (Payment), Credit Card Debt Sucks!
The minimum payment on $55,000 of credit card debt is about $1,200 per month. That’s exactly why the primary focus of our paydown plan was addressing the high-interest credit card debt ASAP. We would have made those minimum payments until early 2027 before paying off the entire balance. Throwing an extra $300/mo to round out the payments to $1,500 still would have kept us at it until 2025. That’s why credit card debt is so burdensome. Keep in mind that’s just for that high-interest chunk. It’s true we would still be making payments to the rest of the debt but the majority of it would still be waiting there. This high-interest credit card debt had to go.
This is the part where some, maybe most, people throw in the towel and say, “Oh well. I just gotta deal with it.” Don’t get me wrong. It’s not bad. Some people might just not know there are other options. But it’s not reason enough to just accept it. You also have to consider that during this period of paying off that existing debt, you have to be mindful not to keep adding to it. I think that’s the hardest challenge debt-lovers have to deal with – probably us included!
So it was imperative we come up with a plan to get this under control. Let my brainstorm begin. Some ways I tossed around in my head:
- Take out more personal loans. This would have lowered the interest rate to <10%. But my credit was shot. All the existing debt from the rehab took it from >750 to hovering right around 600. Yours was still really high but I wasn’t sure I wanted to tap into that because the Balance Transfer trick was something we were planning on using later on and adding more debt under your name might eliminate this option. Excitement level: 4 out of 10.
- Kick off balance transfers now. I didn’t look into this for too long because I kinda knew that it was way to early to try this with the high amount of debt. We would have too much to try to juggle because I think our balance transfer options would’ve dried up quickly. Excitement level: 3 out of 10.
- Private loans from family/friends. I talked to a couple people about taking on a loan from them if they had extra cash on hand. Basically, it was a question of what return did they want and for how long they would be willing to lend it? If it was lower interest than the credit card rates, it might make sense. In the end, I was a hesitant to go this route in case something went awry. I didn’t think it was worth it to risk personal relationships. Another option to keep in our back pocket for now. Excitement level: 7 out of 10.
- Early withdrawals from 401Ks. Ok to be honest, I didn’t think about this for more than 10mins. It’s just not worth it to pay a 10% penalty AND taxes to pay off debt. This was the resort after the last resort. Excitement level: -1 out of 10.
- Cashout refinance. This is probably the best option I wanted us to take. However, I overlooked the credit score requirements and basically disqualified myself from eligibility. Total bummer especially considering how the housing market was rising. Two houses on our street closed at $600k and $655k in the last couple months!
- In an effort to stick to a cashout refinance, I explored the option of having our parents do a cashout refinance but having us pay the mortgage. I thought this would work because our parents have lived in their houses for 20-30 years so they’d likely have equity, they’d probably wouldn’t mind helping us LOL and it wasn’t going to be a burden on them since we would pay it. However, after talking this over with my dad, I felt the same about this as the private loan options – I didn’t want to put our relationship(s) in awkward spots if something came up like losing a job or a different major expense that prevented us from taking care of this “second mortgage.” How would we feel if our parents lost their house because of us? Needless to say, I didn’t even have this conversation with your parents haha! Excitement level: 6 out of 10.
- After no luck reaching out to 3-4 lenders, I had to go back to our own cashout refinance. It was too good of an idea to give up on. After talking to a couple more lenders, I finally found one who thought he could help! Excitement level: 10 out of 10!
For everyone else…
Do you know how much overall (bad) debt you have right now? If it’s ZERO, awesome! Keep up the great work! However, statistics say most of us are well above zero. So take some time to consider:
- Do you have a plan to pay it off?
- Do you know what interest rate(s) you’re paying?
- Are you paying off balance in full each month to make sure you’re not adding to it?
If you answered NO to any of those questions, take some time to dig into them and see if you can better your situation. Even little steps over the course of time will get you somewhere.