How to delever personal debt (shocked at my credit card debt)
Should I be worried that I have slightly over $10k in credit card debt? Began utilizing credit card for 95% of all my expenses YTD in 2023, now that it's November, starting to see just how much I spend on random ass "wants" on a given year (amazon purchases, food, clothes, drinks, dates etc.)
I have a pretty good cash reserve since I was basically running off credit, but I'm just a bit shocked that if I were to pay this down in form of bullet payment, it would be a significant cash burn on my reserve. Should I gradually pay down? Or just pull the trigger and delever? ($6K of the $10k is 0% APR until Nov 2024, if that helps).
I thought you were supposed to lend money in private credit not the opposite.
Given interest rates on credit cards, I personally would pay down enough required to not accrue any interest.
If you have the cash, unless you are making 30% guaranteed returns, makes no sense to accrue 15-25% interest.
Even if the rest is 0%,I think it is important to build small habits. If you delay paying it off, the comfort of using it will drive your debt even higher. That is how most people get stuck in the cycle.
the cash burn will be a sobering reminder for future “wants” purchases.
WSO glitched.
Helpful, thanks
Associate in PC doesn't know how to manage his own balance sheet, good lord
Guilty as charged
Edit:
Well, to answer your question. This is basically marginal cost of capital Vs marginal return on capital. You gain nothing by paying off 0% debt when risk free rate is 5%.
You want to know if you should pay down high interest beating debt when you have the cash on hand?
is it worth a bullet payment for it all if ~$6k of the $10k is 0% APR until Nov 2024?
I was trying to make fun of you, but I can see you are actually asking for advice.
If you have the cash, of course you should pay off high interest bearing debt. It’s never a good idea to carry high interest debt, ever. Only expectation would be good debt, like a mortgage, and typically the interest rate on a mortgage is nowhere near credit card levels.
To your concern about the credit card debt that is still on zero percent apr, the choice is yours. You can pay it off now, or wait until the last day until it flips from zero to whatever the high rate is. My advice would be to pay it off now or set up a payment plan that pays it all off by the last day. This way you never have to think about it again. It’s only 6k, so unless you really need the cash I would advice you just pay it off and be done with it?
The textbook answer is to put the 6,000 in a money market account earning 5% interest until the credit card rate isn’t at 0% anymore (really until the credit card rate surpasses the money market rate), but you’re probably better off just paying it all off now if you can swing it. Get a psychological restart and a clean slate.
At OP, overall, the lesson learned here is that you're not very good at mental mathing your expenses.
Short term, try to pay it down so you don't pay interest, than pay the rest off in increments or as quick as you can. Long term, develop a budget. You can find them all over the internet or you can make a quick spreadsheet yourself. Budgeting is hard because you have to commit to it, but you need to do it in a method that you will stick to.
Pay the 4K.
This is your average private credit associate
company website: "Our private credit team is composed of reputable and well-educated professionals, able to approach complex financial issues and deliver value"
reality: OP
me: can we have private credit associate?
mom: we have private credit associate at hime
private credit associate at home: OP
You've gotten plenty of good advice so what I'll leave you with is.....as I grow to understand American society better (having only lived here for a few years), it's apparent that trapping oneself in cycles of debt is a very aspirational middle class / lower income thing to do. It self-perpetuates, as you've noticed, and once it's reached critical mass, people are trapped for life. It's very binary in the US given the massive wealth separation between socio-economic classes. You're in a privileged position to grow your wealth through asset accumulation....don't screw it up.
Interested to learn more about your life experience. What part of the world did you grow up in before coming to America, and what have you noticed as an 'outsider' as things that have stuck out the most?
America is definitely a consumer economy and it is truly overwhelming the amount of marketing thrown in your face, the access to credit one has to buy basically anything, and how socially accepted if not encouraged it is.
McMansions with all the nice amentities (ex: do you really need 3 flat screen TVs, granite counter tops, and a separate bar just in the basement?)
New car every 5 years (ex: 70k on a comically large truck to drive you to and from your suburban house and to your accounting job)
Toys like boats, four wheelers, motorcycles, etc. that can all be financed by basically anyone with an employment record
Private schooling when comparable public schools in quality are available for free (not always the case)
etc.
there is a lot of bloat and fat that can probably be cut in the average life of a middle or even upper middle class lifestyle that is keeping someone perpetually broke
Life lesson from an oldster (59), use credit cards for convenience, not credit. Meaning ALWAYS pay off your full balance each month. If you can't, don't buy the crap in the first place. If you can't write a check for it, don't get it. The exceptions would be a home or car but you're not using a CC for them anyway. CC interest will erode massive amount of wealth creation. 10s of millions of people never figure this out which is why CC companies are in all those skyscrapers in major cities.
How about creating your own skyscraper!
Take care of your behaviours. You won’t get rich by earning 5% on $6k for a year - however you’re building crap habits in the process (lifestyle creep). That interest isn’t even covering the cost of a decent date.
However, id you get laid off, that $10k balance is going to hurt quickly.
If you work in finance, you don’t need that kind of finance. Just pay it down, and stop spending more than you earn in a given month.
lol don't pay anything. keep racking it up. 25% interest rate is free money.
You mentioned you're spending money on a lot of useless wants, etc. Sounds like there's a psychological effect of paying everything on credit and not seeing the actual cash come out of your bank account. I'm guessing you check your bank account more than you check your credit card balance based on your post.
Even though you have 0% interest on some of the balance for now, I'd recommend paying it off just for the psychological benefit of seeing the impact of your spending on your bank account. You'll save more money from reducing spending than you will from earning a little bit of interest on that cash during 0% interest period.
On that note - a penny saved is not a penny earned - a penny saved is actually $0.013 earned because with each penny you spend, you have to earn $0.013 just to replenish it after tax due to the impact of taxes on your earnings. You save more just from reducing spending than trying to increase income on a 1:1 ratio. So to offset your increased spending with higher income, you have to increase income by additional 30% just to account for effect of taxes.
This math is critical. People get a big pay raise and think they make 100k more which means they can spend 100k more, or maybe they can spend 50k more and save 50k more (if they are one of the smarter ones). In reality taxes eat up a huge portion of these gains, so keeping lifestyle creep low is crucial.
When looking at an expense you are thinking of making that is not needed just do the math of how much money does it cost (ex: 10k), how much money do you need to make to be able to buy it (ex: 14k before taxes), and how much time it will take to make that much money (ex: 1 month). Are you willing to trade that much time of your life working for this possession? Sometimes, that answer is yes. but often it will help you better prioritize
Generally I feel like finance professionals shouldn't live paycheck to paycheck and experience lifestyle creep. Don't spend money unless you actually have it in the bank. You shouldn't ever have credit card debt with your (assumingly) high income relative to peers outside of finance (teachers, accountants, etc). Things could change on a dime and worst case scenario you get laid off - you should be able to cover 3-6 months of expenses from your savings with no credit card debt. Don't get me wrong - I use a credit card for all purchases, but I never let it sit on a balance becuase then it accrues interest and also hurts your credit score
I say refinance, uptier your credit card and collateralize your Amazon purchases of all the 12 inch dildos you’ve bought.
We can establish a PIK toggle for amort on interest rates and get a 0% teaser fee NTM
With new creditors we can change your covenants so we can ensure you can benefit from the new cov-lite era and bondification of secured notes.
Not sure where the 12 inch dildo reference comes from but alright, noted, thank you
Update: private credit OP has fully paid down his outstanding CC debt. Thanks all for the push I was nervous to take. Will learn from my spending habits and end the year with a clean slate :-)
I agree, I am an idiot for letting it pile up this high. Think I let the idea of 0% APR boost my comfort and just ran it YTD vs paying down gradually.
Congratulations!
Hopefully, focus more on lending and less on borrowing from now on.
Yeet, nice job glad you could do it
Quod doloremque fuga eaque est aut quis non. Quis quo consequuntur doloremque nobis vitae. Doloremque excepturi explicabo dolorum quia recusandae quis non. Sit hic nostrum ratione deleniti. Mollitia ullam hic soluta alias amet asperiores et.
Sed repudiandae perferendis voluptatem voluptas qui et dolor. Nihil et voluptatem sunt hic est blanditiis ad.
Repellendus neque cumque est sed asperiores et molestiae. Minus cum adipisci quae. Deleniti sapiente qui in dicta ut.
Voluptas consequatur velit ut sunt commodi. Aliquam nam aut ipsa debitis voluptates non consequatur. Ipsum vitae ut nam sint vel numquam ea consequuntur.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Odio excepturi nemo velit. Et laudantium eum omnis blanditiis atque. Iusto et optio porro et iusto voluptatem quia exercitationem.
Magni minus possimus voluptatem laborum alias eos sit est. Itaque voluptatum autem minima nobis nesciunt labore alias. Praesentium dolore doloribus consequatur repellendus aliquam vel.
Ex non atque placeat quasi eaque. Quasi odit odio expedita rerum ad non ea. Quas fugit facilis dolorum dignissimos quo. Iusto aut sunt inventore consequatur voluptatem.
Repudiandae voluptatem vitae reiciendis perspiciatis ipsam officia adipisci. Porro sit consequatur similique dolor vero dolores excepturi. Qui atque qui reprehenderit assumenda. Deserunt a ut qui est rerum dolorum.