**NEED ADVICE - What should I do with my $ ?**

[ebatorius]

I received an $18K bonus and I would like some advice on how best I can use it to pay down my debt and have a decent emergency savings.

Here is where I am at:

Goal: Become debt free & raise credit score

Debt: 5-10 unique minor collections or credit accounts - Total $ amount owed is less than $5K
Debt: $18K car loan
Total debt: $23K
Current Savings: $0

I just received $18K bonus.

Option 1:

Pay entire $18K car loan. PROS: Eliminate $650/mo payment allowing for $ to pay off smaller debt CONS: Small debt still there which effects credit score each month not paid

Option 2: Partial pay off of car loan ($10K-$13K) and $5K to small debt. PROS: Majority of car loan paid off and all minor debts completely paid off CONS: Still have large monthly car payment

Option 3: Put $2K in emergency savings. Pay large % of car loand and pay all or portion of small debt

Option 4: Suggestions????

[disneysteve]

I received an $18K bonus and I would like some advice on how best I can use it to pay down my debt and have a decent emergency savings.

Debt: 5-10 unique minor collections or credit accounts - Total $ amount owed is less than $5K
Debt: $18K car loan
Total debt: $23K
Current Savings: $0

What is the interest rate on each of the debts?
What is the current market value of the car?
What is your monthly income?
What are your total monthly living expenses right now both with and without the debt payments?
Do you have a budget that you follow?
How did you end up with 23K in debt and $0 in savings?

No matter what, priority #1 needs to be to establish some emergency fund. At least $1,000 is a reasonable starting point. So I definitely wouldn't do option 1. Whether or not I'd do 2 or 3 or something different would depend on the answers to the above questions.

[bjl584]

I received an $18K bonus and I would like some advice on how best I can use it to pay down my debt and have a decent emergency savings.

Here is where I am at:

Goal: Become debt free & raise credit score

Debt: 5-10 unique minor collections or credit accounts - Total $ amount owed is less than $5K
Debt: $18K car loan
Total debt: $23K
Current Savings: $0

I just received $18K bonus.

Option 1:

Pay entire $18K car loan. PROS: Eliminate $650/mo payment allowing for $ to pay off smaller debt CONS: Small debt still there which effects credit score each month not paid

Option 2: Partial pay off of car loan ($10K-$13K) and $5K to small debt. PROS: Majority of car loan paid off and all minor debts completely paid off CONS: Still have large monthly car payment

Option 3: Put $2K in emergency savings. Pay large % of car loand and pay all or portion of small debt

Option 4: Suggestions????

Put 2K into an EF. With the rest it depends. What is the 23K total debt? Does that include the car loan, or is it seperate? Is it Credit cards? What is the interest rate?

[RatRaceBeGone]

With no savings to speak of I would put three months worth of basic living expenses aside in a savings account. If there's anything left I would use the balance to get myself out of collections pronto.

[pdweaver]

My suggestion would be:

- Establish an emergency fund
- Pay a large chunk of that bonus to whatever loan has the highest interest rate.

Make sure that when you pay off one loan, use that extra $$ to pay off the next loan. You could have all your loans paid off pretty quickly if you use that mentality.

Good Luck

[Brownstone]

I would pay the auto loan off immediately and then save up a small emergency fun of 1-2k. $650 is major.

[auron]

Correct me if I'm wrong, but aren't being debt free and increasing credit score conflicting goals (assuming you pay on time)?

[LMA]

At least a $1,000 or so needs to go to savings as an emergency fund since you don't have any savings at all.

Second would be paying the delinquent debts since you mention that you want to raise your credit score and nothing hurts your credit more than unpaid bills. Plus getting debt collectors off your back is a major plus

Third, apply the rest towards the car payment. Yes you would not pay it all off but if you refinance that loan and make the big payment your payments will come way down. Then with no other debts and an emergency fund in place you can make extra payments on the car and pay it off in no time.

[photo]

Correct me if I'm wrong, but aren't being debt free and increasing credit score conflicting goals (assuming you pay on time)?

How so? As you lower your debt ratio (how much debt you have versus how much you have available to borrow), your score increases. Also, one of the factors that figures into your score is length of your credit history.

[ebatorius]

I need to do some homework but it looks like the common denominator is to at least have an EF between $1K to 3 months worth of living.

As for the the entire bucket of debt it is that $23K amount which includes the car loan.

Keep the suggestions coming! I will be discussing ALL OF YOUR FEEDBACK with my wife so we can make the BEST decision. It is sooooo exciting to plan on a debt free life!

[snafu]

You've left out important facts which are necessary to give practical advice. Being smart about how you use money can get you out of debt faster, easier and less painfully. 1st step is to get DW on board with the idea of getting out of debt and using your money to benefit both of you. How much did you pay in interest on various debts in 2011? if you can figure out the total you'll likely be surprised!

What debts do you have in collection? How long since you've made any payment on those debts? They may be better left to later under certain conditions. Getting an emergency fund in place is a very high priority. Life happens, things go wrong, you need to be able to manage without getting deeper in debt.

[acat29020]

reply

Great advice.. may try some of these options myself. Thanks for sharing!

[Naples09]

delete

[graceful]

I need to do some homework but it looks like the common denominator is to at least have an EF between $1K to 3 months worth of living.

As for the the entire bucket of debt it is that $23K amount which includes the car loan.

Keep the suggestions coming! I will be discussing ALL OF YOUR FEEDBACK with my wife so we can make the BEST decision. It is sooooo exciting to plan on a debt free life!

If I were you, disregarding the interest rates of the cc debt and car loan:

Put $2-3K immediately in an EF.

Pay off the entire $5K CC and misc. debt. Stop using the cards or adding to debt. In case of a true emergency, you still have your open credit limit as a backup to your cash EF. The nice thing is that you will no longer have to keep track of making all those multiple payments to the various debts and only have to make the one car payment.

Pay 10K towards your car loan. Your remaining balance should be around $8K now. Add whatever you were paying to the cc/other debt to the $650 car payment. If you pay at least a $800 a month towards your car loan, even if your interest rate is about 8%, you should be able to pay off the entire car loan in about a year.

So, hopefully with no emergencies cropping up, you should be debt free in a year and be able to add that $800 a month payment to savings, etc.

Good luck.