Well, I finally got my head out of the sand. It’s official! I am into credit card debt. Some of this debt was necessary spending, but a lot of it was not. I could keep my head in the sand and continue spending without thinking or a plan. Or, I could get my head out of the sand and focus on getting rid of this debt as fast as possible. So, as mentioned, I’ve decided to create a debt reduction plan and will stick to it! To help keep me honest, I will be periodically reporting on how I am doing. It’s not going to be easy and it’s going to take some discipline, but I think I can do it. So, let’s dive in to discuss my debt reduction plan.
1. Assess My Current Situation
In my opinion, the first thing I need to do is assess my current situation. Here goes nothing.
I have five cards/accounts. The balance and interest rates appear below:
A. Best Buy Credit Card. Interest Rate: 0.00%. Current Balance is: $523.55
B. Green Sky Debt (not a credit card). Interest Rate: 0.00%. Current Balance is: $6264.69
C. Chase Credit Card (Business). Interest Rate: 17.99%. Current Balance is $1,000.00
D. Synchrony Bank. Interest Rate: 0.00%. Current Balance: Approximately $4000.
E. Chase Credit Card (Personal). Interest Rate: 20.74%. Current Balance is: $11,882.85.
Here is my debt reduction plan to tackle each:
A. Best Buy Credit Card
This is the credit card with the smallest balance and therefore the one I can get rid of the easiest. I do have enough funds to pay this off, but I also have mortgages to pay. The mortgage for my most recent purchase is due June 1 and I want to ensure that I have enough to cover this.
Additionally, I want to ensure that I can at least cover the mortgage for July as well, so before I pay this, I just have to make sure that I am financially sound.
I anticipate that I will be able to pay this off though within the next month. Wish me luck.
Once I payoff my best buy credit card, I plan to close the account. The account was opened up about a month ago in a moment of weakness on my part. But I have enough credit cards, and I don’t need a best buy card. It was a stupid decision to open this account and so I can’t wait to close it. It’s not even a visa card (which I could have gotten). It’s just a best buy card.
Because I opened this account a month ago, it won’t hurt my score to close it, as it won’t negatively affect the average age of my credit.
Finally, this debt was arguably a necessary purchase. I bought a Ring camera system for my mom’s house. I absolutely don’t regret this purchase at all. Just mad at myself for opening up a needless credit card.
B. Green Sky Debt
This debt was a necessary purchase. I had to buy a new HVAC system for one of my condos. That being said, the interest rate is 0.00% for 12 months.
So, because of the 12 months grace period, I structured my payments to take care of all the balance by the end of the 12 months.
The monthly payment that I pay for this is $650 based on the original balance. I can’t wait to not have to worry about this bill again.
C. Credit Card Debt (Business)
I honestly don’t remember what this debt was for. It’s written down in my ledger but I’m too lazy to look. I can tell you though that this was a necessary purchase.
Also, because I rarely use my business credit card, I almost forgot that I had this debt. That’s in part because all my accounts I pay automatically (at least the minimum due) so that I never miss a payment.
Because this is a business debt, I will pay it with a business account. Hopefully, this should be gone by the end of the summer.
D. Synchrony Bank
So, this was a necessary debt. I had to buy new furniture for the condo that I purchased. What I didn’t realize was that when I was financing the purchase, I was also opening a credit card with synchrony bank. Lesson learned.
Also, I don’t know the exact amount as of yet because my card was sent to an old address. I estimate the total debt to around $4000. In future posts, I will update this amount.
Like the Best Buy card, as soon as I pay this off, I will be closing the account. I am set up for 0% interest for six months and I will take care of the balance over that time. Since this is a newer account that was just opened, closing it within a year I suspect won’t hurt my credit. It may even help it.
E. Chase Credit Card (Personal)
Finally, the grand daddy of them all, I have my personal credit card debt to payoff. I would love to tell you that this is all necessary spending but that would be far from the truth. Whether I choose to admit out loud or not, I’ve been stressed. I tend to shop and spend without thinking about it. Because I am creature of habit, I recently got into the habit of just spending and putting things on the credit card.
But no more.
It’s going to take a while to get rid of this debt. With any luck, I can eliminate this debt by tax time in 2024. So, in the spirit of Dave Ramsey’s advice, I can’t just wander out of this debt.
Because I don’t want to stop saving and investing to tackle the credit card debt, it’s going to take me longer. In fact, I just increased the monthly contributions to my dividend portfolio. But I am determined to eliminate this debt, under the above conditions, as soon as possible.
2. High Mortgage Payment
I typically don’t worry about my mortgage debt. You’ll notice that I didn’t include any of my mortgage debt as part of my debt reduction plan. That being said, there is one mortgage that is very difficult for me to pay and that may hinder the speed at which I can eliminate my personal debt. That mortgage is associated with the new beach condo I just purchased.
Sufficed to say that the mortgage, taxes, insurance and HOA comes out to about $6000 per month! Ouch!!! The interest rate I am paying is about 10%. As soon as I get to six months, I’ll explore the option to refinance. Even if it takes a year, I suspect that refinancing will have a dramatic impact on the monthly payment – which is the main thing I am concerned about.
Although the condo I purchased is in a great location and is otherwise a great unit, generating revenue to cover $6000 is a tall order. So, I fully anticipate that I will have to pay for part of the mortgage out of my own pocket over the course of the next year (or at least until I refinance). For what it’s worth, I expected this to be the case prior to be purchasing the unit.
What’s worse is that bookings have been down this year. And, because I panicked a little bit, AND because this is a new condo on the market, I offered what I think were too many discounts just to get something in so I can pay the mortgage in June.
I have bookings for June and July, but because they were at a discounted rate, I don’t anticipate I’ll make my projected income for the year. Oh well. You win some and you lose some. The last thing I will mention though is that I also bought the condo so I can use it, so it’s a semi mixed investment property.
3. Job Loss
A year-and-a-half ago, if you asked me, I would tell you that my job was secure and that I wasn’t worried about losing my job. Oh how life has changed in such a short period of time. Now, I am certain that I will lose my job in a matter of months.
I don’t typically discuss my employment and I haven’t even disclosed the field I am in or the work that I do. But, the bottom line is that my job is coming to an end. There’s no use crying over spilt milk. I am going to take a break from the work force for a while and see if I can make it on my own. I’m not optimistic.
The point however, is that I won’t have the stability of a dedicated source of income. For personal reasons, it may be very difficult for me to get another job anytime soon, so I may be financially screwed. But, I’m not going to worry about it. Because I won’t have that dedicated income coming in, it may be difficult to get out of this debt I am in. That’s one of the reasons why I an trying to eliminate my debt (or bring it down substantially) as soon as possible.
Final Thoughts
On the one hand, the total debt is a bit overwhelming. The total debt is about $20,000. That’s a very scary number, especially since I wasn’t in debt (except for a small credit card balance) prior to me purchasing the new condo.
Although the total debt is a bit overwhelming, breaking it down as I did above helps. I have a debt reduction plan to get rid of my debt and I plan to stick to it.
The furniture bill (Synchrony Bank) will be paid off in 6 months and the HVAC bill (Green Sky) will be paid off in 12 months. Those two are a virtual given.
The Best Buy credit card will be paid off in a month. The Chase Business Credit Card will be paid off by the end of August.
So, realistically, the one that is the most difficult to tackle is the last of my personal debt, which is the Chase Personal Credit card, with a balance near $12,000. Before I pay extra on this debt, I will try to ensure that I have my mortgage payment for the next month or two for my new condo and a starter emergency fund of at last $1000 in my savings account for each bank account I have. Then, I will try to put any extra that I have on the Chase Credit card. Wish me luck.
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