I have always had good credit – not excellent, but been able to make payments. I am starting to believe that I have made some pretty poor financial decisions. I have paid all of my debts on time, but primarily only paying the minimum payment. I have numerous credit cards and three loans. I have a CD that will mature next month, and I am not sure how to use that money to hopefully alleviate this situation. I have learned to cut back on spending, but I am still finding myself using my credit cards for gas, groceries, etc. after my paycheck has been used to pay bills. I currently share an apartment with a friend, though I am looking to move into my own place in 5 months, which will increase my cost of living significantly. I am not sure if I should cash in my $4,000 CD and use the money to offer to a new apartment complex, since my credit report is no longer as good as it used to be, or if I should use the money to pay down one of my credit card debts.
Card A: $500 13.99% APR
Card B: $4900 9. 99% APR
Card C: $5200 9. 99% APR
Card D: $9700 13.99% APR
Car Payment: $17,000 still owed – $382.60/month
Personal Loan: $6,000 still owed – $301.08/month
Personal Loan: $4,500 still owed – $101.17/ month
Having $4,000 at your disposal to reduce your debt with is nice but it is not going to be enough to dig you out of your current hole so that in five months you can be prepared to take on more financial obligations.
You told me that with your current income and payments, you can’t make it through the month on what you make. Your debt is actually increasing, not decreasing.
The $4,000 CD is going to be welcome but it does not sound like you have any cash in a savings account to use in case you have a surprise expense. Without cash in a savings account, any financial surprises will simply wind up back on the credit cards, erasing any progress you had fought for.
Without knowing the interest rates charged on the car or personal loans, I think you are best using $2,000 for debt reduction. Pay off Card A and apply $1,500 to Card D. Put the other $2,000 in a savings account to protect you. After that use the debt snowball approach to pay off the rest of the debt.
And remember the law of holes, when you find yourself in a deep hole, stop digging.
As disappointing as this news is, unless you can significantly reduce your other debt in the next five months, don’t take that apartment. It will sink you and before you know it, bankruptcy will be on your doorstep. It doesn’t have to be that way.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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