Hi all, I would like to solicit advice on what you would do in my situation. As I posted before, I am facing a lay-off on September 30th unless I find a new position before then. I am beginning frugal life, per Hope's advice, and thinking through my imminent bill payments. My loan bills are described below: Citibank 0% apr through November - balance today $4870 payment $115/month Car 7.99% apr 18 months left - balance today $5500 payment $310/month I have been paying the minimum on the car ($310) and paying $700 a month to Citi for rapid reduction. However, with a potential layoff - I'm trying to think of the best way to lower my overall debt quickly and protect my one asset - my car. In my city, without a car, I'm dead. I have about $500-$1000 in negative equity in the car loan, so if worse came to worse and I had to sell the car to prevent reposession, at this rate, I'd *still* owe money on the car and wouldn't have any to buy a new (junker) one. So, my question is: would this be a good time to pay Citi the minimum $115 and put the extra $585 toward the car (in addition to the $310 already being paid) to put equity in the car? I like this idea because: 1. I'm saving money on my overall debt by "snowballing" the 7.99% car debt first over the 0% CC debt 2. I'm protecting myself from threat of repossesion if I have to sell the car; I could take the equity and buy a junker if needed. 3. If all worked well on the job front, I'd have the car paid off in 8-9 months rather than 18. Or should I pay the minimum on everything and pocket the $585 for savings (food, etc...) until the job crisis is over? Thanks in advance,
Marci, Until the job front is stabilized, I think I'd just pay miniums on everything and try and build up as much cash as possible. Once the employment picture is clear, resume the snowball.
I totally agree with Keepmine.You should stash as much $$$ as possible to get you through your possible unemployment. This might buy you a couple of extra months to find a new job.Good luck
Ok, I disagree with the others, sorry. I say pay extra towards the car, but not ALL of it. You are paying 585 extra to Citi on a 0%, BUT if you do become unemployed, 0% or 100% isn't going to matter. If you paid $285 extra towards the car, then you will have it paid off in 9 months instead of 18. There are still 5 months til September, then if you have to go back to the $310 payments there would be 8 months left instead of 13, if you had only paid the minimum, or you'll have paid so far ahead you won't need to make any payment for several months. Doing it that way leaves you with $300 extra for the next 5 months ($1500). Now I would do like someone else mentioned before, buy money orders (depending on how long they are valid for) or have a trusting family member hold the money for you. now you'll still be m\paying the minimum payments at $115, then get money orders each month for the next 5 months at $115 each, so you'll be able to pay 5 months after the lay off. This will leave you with $185 a month left over to put in savings. So if you have followed this long, and you are NOT going to receive any type of pension, then these 2 payments SHOULD (and boy do I stress should) be covered for 5 months Now you could always take the entire extra 585 and pay it all towards the car and have it paid off in 6 months, meaning you would only have to come up with 1-2 additional payments after the layoff, but doing it this way will leave you with no savings cushion. Sorry so long, I was typing my thoughts...lol
marci, I think that you should pay minimums also. I quit my job in January w/o another real one and started a business. I have been working part time since then and i have a world of debt. I just pay minimums until i can get over this hump just to make sure I can survive. Bank the excess money and save it for a real rainy day and then if you get back on your feet you can pay the car off then.... good luck roni
Well, I'm in the minority with KHM. I think you should pay extra on your car. I would NOT recommend you putting in in the bank unless you have iron willpower and will not touch it no matter what emergencies life throws at you. It always seems to me like the emergencies hit when you have money in the bank...lol. L
Let's step back and be logical... Protecting your credit is easy. You can use your prime sources of credit to borrow if you need to make your payments. Worst case scenario: your debt load goes up b/c you don't quickly find another job. You seem to want to pay off the loans to protect your credit. So with that in mind: You have to have the car. The objective advice on paying down debt is to pay the highest interest rate first. For Fico purposes, you do revolving first, installment second... but who cares about that. If I remember you have a great prime portfolio...so you just want to make sure not to screw it up.. so, keeping in mind you have to have the car and currently it is generating the higher interest rate... then if you pay something down, it's the car. that's a nobrainer Again, you know what the bank doesn't. Call them and ask if they have "miss a payment" coupons... or something similar. My bank used to send them around Xmas... just send it in and no payment due... interest accrues. Tell them you're just thinking you may pay off some revolving credit as it's generally more expensive than your car loan... they'll check into it. They can also let you just skip a payment and apply it to the end... this is not debt reduction but I'm wanting you to set up measures if you can in case things get really tight... this could be a protect your credit strategy... ask if they can approve it for you in case you want to use it... Now... As to how to pay it off... Call your bank and ask them what happens when you make multiple payments... Here's the idea: normally you can overpay in 2 ways: Normal payment plus extra Principal... so This month 300 reg payment, say 150/150 split plus you pay an extra 200 towards principal... net effect 350 reduction in what's owed and the next month's payment is due again next month... OR You pay this month's 300 reg payment... and 200 towards next month's payment also... it is applied as another payment: meaning, next month you owe 100 payment... Now, the net effect of this second scenario is that as long as you keep making at least the regular monthly payments, you've reduced your principal by the additional payment amount...the net effect is the same as if they applied it directly to principal... but the real difference is that if you need to skip a payment, you can because you made your car payments several in advance. Bank of America told me they always apply "extra" payments to next month's payment unless you use the special part of the form to distinctly pay "addl principal"... Now, I also agree you need to have money stashed... I don't know what your living expenses are or how much you have towards that part of your life... but with what info you've given... if you want to pay down something... do the car but try to do it as payments... as for the Citi thing when it comes out of the intro period... right before you will change companies could you apply for another Citi intro rate on another card??? call your cards for a bt deal... talk with Cap1 about a new Plat with 0 intro... again, if you can move it to 3 percent interest rates or under, it'll help you... you can also call Cap1 and ask about 2 percent payments.. well.... you know that anyway... Oh, and I posted the Cap1 payment protection plan for you on another post... they have a plan that will pay mins but you'll need to investigate it and see that it's a good plan and that it will all be eligible if you bt... Hope this helps
I agree with everyone. Pay extra on the car, but not all of it, and pay the minimum on the Citi. Use the extra to buy money orders in advance to pay off whatever is needed if the time comes where you don't have a job. Money orders are really hard to cash so there won't be a temptation to buy unnecessary things. Someone else suggested this a while ago and I thought it was a GREAT idea. Just my $.02.
Wow... a LOT of great advice. Thanks all for replying! My financial situation looks like this: 1.) With my current income, after the minimum is payed on all bills (living expenses and loan bills), I have $950 left per month. Of this, I use: $350 per month for food and gas, so that leaves me ~$600 a month extra to put somewhere, which I had been putting toward Citibank (hence the $700 payments to Citi). 2.) In addition to that, starting in September, I will have these forms of income: $1200 (I anticipate this from a tax return; jus waiting on the direct deposit). I also should definitely get unemployment for at least 6 months from termination date, but sadly, there is no severance pay. 3.) In tems of expenses, I will cut the following if needed: Since I currently rent from my mom (she owns apartments), she said that I could live rent free starting in September. That's another $300 a month - although I'm trying VERY hard not to go there. I want to pay her rent. I will eliminate my landline and keep my cell phone, saving $56 a month. I will reduce basic cable to basic local channels, saving $32 a month. I will, kicking and screaming, reduce my food budget (I HATE to cook..). :-( But... 4.) With an unemployment salary at 66% of my current income, I could still pay all of my bills (including rent) with that income and still have about $100 leftover for savings - especially if I've pre-paid utilities. Having said all that: I like KHM's idea of paying an extra $300 toward the car (It would be paid off anywhere from February to May 2003, depending on how long I double paid), paying the minimum on Citi and saving the rest. The car loan is a simple interest loan (thankfully no rules of 78, here) and I'm trying to call my bank to see how any extra payment would be applied. Marie, the monthly accrued interest is about $35 a month, so that's not bad. I feel fairly comfortable and disciplined saving the extra $300 without spending it on "emergencies", although, Whyspers, I understand how many of those do like to pop up when you have money laying around. I am not sold on the idea of pre-paid money orders (for some reason, I have some emotional fear that the money's tied up beyond reach if I felt I really needed it - but maybe that's the point). I'll give money orders some more thought, though. I did like Hope's idea of pre-paying utilities, and I will do that for all of my utilities for a year in advance. Thanks again for all the comments and pointers!
Marie - this is great! I called my bank and verified that any extra *unspecified* payment goes for the next month's payment automatically. So, I will just pay double the minimum from here on out until I simply can't anymore. Then I will pay the minimum anyway (I can do that with unemployment or any old job anywhere) and still have equity in the car and a shorter pay off date. Yay! Thanks to all - especially Marie and KHM!!!!
