If this isn’t the correct sub for this I’ll gladly repost somewhere else, but I figured this was my best bet for a good answer.
So I’m 24. Have been working on my credit for 1.5years but slipped up and maxed out my cards. I’ve been working very hard and have gotten my score back to 665. However, I still have ~$2000 in credit card debt and ~$3000 in personal loan debt. I’m in good standing with all my lenders, pay everything on time, etc. I have $1250 in savings at the moment and place $250 in savings per month. I make 40k annually and my bills total ~$1150/month (with credit/loan debt included). My DTI is about 37%. That said I don’t have much wiggle room by the end of the month. I pay all my bills and have a strict budget with food and pleasure, but it works well for me. I’m at about 5/10 on the stress scale, but I feel like my long term goals are getting further out of reach if I don’t get this debt figured out quickly. So there’s my financial background. Here’s my options.
Option 1: Since I’ve gotten my score where it is now I have been pre-approved for a debt consolidation loan. I was approved for $8000 unsecured loan but was planning on speaking to them and only accepting a $5000. This will let me pay off all my credit cards and loans I currently have and pay back only 1 monthly bill at a much lowered interest rate. Pros of this option: - achieve credit score goal of 720 very quickly - keep my savings as is with $250 still going in savings per month - all 5 total credit card/ loan debt consolidated to 1 loan = 1 payment per month as opposed to 5. - lower monthly interest fees - total saving of ~$100 extra per month if I go with this option.
Cons of this option: - I will still have $5000 worth of debt - It will then take me ~26 months to pay off if I want to keep my current lifestyle and savings
Option 2: I drain my savings and put that towards paying off my credit card debt. I spend the next 6 months putting extra money towards paying off the rest of my loans. This will achieve the same credit score as the first option but within 6 months instead of immediately.
Pros of option 2: - achieve same credit score goal (720) - will have ALL debt paid within 6 months instead of 26 months - by the time I restart savings I can put $400-$500 in it per month instead of just $250.
Cons of option 2: - will achieve credit score goal but only at the end of 6 months - no more emergency fund or savings account for at least 6 months (scary) - will have to start savings from scratch in 6 months - will have to make a stricter budget on pleasure activities (which are already low to begin with) - no winter vacation :(
I feel like both options are good but I don’t know which is the smarter to go with. Please help! Also, any other type of options and input is very much appreciated!
TL;DR: Should I drain my emergency savings account and go on a strict budget to pay off my debt within 6 months or should I keep my savings, accept a debt consolidation loan, and pay off my debt slowly within 2 years?
Submitted September 24, 2018 at 10:56PM by inspiredbythesky https://ift.tt/2xMT68a
