- October 31, 2023
- Posted by: legaleseblogger
- Category: Related News
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I need some other opinions on my financial situation and the best way to move forward.
Current Financial Situation:
I currently have around $20k in total credit card debt, which is divided between two cards. Card 1 has a balance of $10k with an APR of 29%, and Card 2 has a balance of $10k with an APR of 22%. Additionally, I recently lost my job and received a significant severance package, leaving me with $30k in cash.
My monthly expenses amount to roughly $5,500, and I live in a high-cost-of-living area. Although I am actively networking and searching for a new job in a high-demand field, there is no guarantee that I will secure employment in the near future. I have heard stories of individuals who remained unemployed for six months or longer.
Potential Course of Action:
Given my situation, I am considering the possibility of using a portion of my cash reserves to completely pay off the credit card with a 29% APR. By doing so, I would be left with $20k and have enough funds to cover at least three months of unemployment before relying on state assistance or other means of support. This strategy would provide a significant relief, as it eliminates the burden of the high-interest debt.
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In your case, an AI Legalese Decoder can help you navigate the terms and conditions of your credit card agreements, enabling you to make an informed decision about which debts to prioritize and when to utilize your cash reserves. By comprehending the legal language and implications, you can ensure that you are maximizing the potential benefits and minimizing any potential risks associated with your financial decisions.
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You can still pay down the debt after securing your new job, there’s no reason to take on additional risk while unemployed.
The reason for keeping a cushion is in case your credit cards get restricted. Apart from that, it makes most sense to pay off the debt, because if you find yourself without money you could pull on the cards but there _is_ that pesky possibility of the cards just getting pulled. Do you have any other money or line of credit you could draw on if that happens?
How did you incur $20k in credit card debt while working at a presumably full time job? You need to take a look at your spending habits. If itÔÇÖs likely that youÔÇÖre going to blow through the severance, then IÔÇÖd recommend paying one of them off. If youÔÇÖre disciplined, wait until you have money coming in again
Eliminating the high interest debt makes sense. Remember you don’t have to do lump sums either. You could pay $5k today to the 29% card, $5k, next week, etc as you go through the interview process and hopefully get a job offer you can accept and have an income source again.
Assuming you can cover expenses, it makes sense to clear out that debt ASAP.
> ride out at least 3 months of unemployment before any assistance from the state or other means.
You should also apply for unemployment. Just be sure to disclose your severance. You may still qualify for a UI check.
I would not pay off the cards. Find a job first, then do pay them off with the left over severance pay.
In the mean time if your job hunt takes longer you have your full severance to carry you on.
Keep in mind your UI will not start paying for a while as they will take into accnt your severance pay.
Good luck!
DonÔÇÖt do anything besides paying the minimum. Get a new job ASAP and then pay down whatever you can.
Cash is king if you have no cash flow.
Job first, then worry about the debt.
I know very qualified people who’ve been unable to find anything after over a year if active searching.
Wait until you get the job and then pay off credit card with the double dip.
Can you still receive unemployment benefits in your state with the severance? Definitely err on the side of applying if you’re unsure. Unemployment insurance is part of your compensation. Use it if you can. Don’t forget you’ll owe taxes on the severance if they weren’t withheld.
Keeping $20k in credit card debt at 22%-29% is nuts. Pay it off. Worst case if you don’t find a job before you’re out of money you can start using your credit card again. I’m assuming it doesn’t come to that with your high demand job.
You may find these links helpful:
– [Leaving a Job](https://www.reddit.com/r/personalfinance/wiki/leaving_job) (resigning, quitting, fired, laid off, etc.)
– [Job Loss Megathread: unemployment resources, state-specific information, and help](https://www.reddit.com/r/personalfinance/comments/fkyu8h/job_loss_megathread_unemployment_resources/)
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Personally, I would stop paying the cards. Who know if/when you are going to get a job, why would you jeopardize your ability to afford housing to pad Citibank profit margin.
You may find these links helpful:
– [Debt](/r/personalfinance/wiki/debt)
– [Dealing with collections](/r/personalfinance/wiki/collections)
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Can you pay all your monthly expenses with your credit cards? If so, pay em off, as there would be no difference in spending power. If not, pay the minimum until you find another job. The peace of mind of having that cash on hand will outweigh the interest.
I would personally pay only the minimums until you are a week or two into your new job. You can’t be sure how quickly you’ll get a job, and once you’re there you can’t be sure you’re ok there until you’ve worked a few shifts.
Yes its going to be unpleasant to keep paying interest, but it would be even worse if pay the debt off, take longer than expected to find a job (or another emergency happens before you’re working) and then you have to struggle to find a way to pay for your rent, car etc.
I would consider locking up your credit cards for now, do not use them for anything at all, no excuse. If you are really worried about those interest rates, you can look into doing a balance transfer to another card with a 0% 1 year interest rate or whatever their option is… But you do not use any credit cards for any reason.
Pop that severance into a high yield savings account and use that as your new emergency fund. If it takes you just 3 months to get into your new job, 50% of your current reserves are gone. If it takes you 6 months, its 100% gone and all you would have left is the severance. Job market is rough right now and you can’t count on getting hired soon unless you already have an agreement with an employer.
That’s my 2 cents. Hopefully will all the difference advice you get here you make it out well, and I hope that you get a great job very soon!
​
Edit – I just realised, is the severance itself 30k? How much do you have as an emergency fund?
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You will be in a better spot keeping the 30, paying minimums and collecting unemployment. If you pay down the debt and end up needing the money you are going to incur larger fees than the interest you’ll save on those payments
Hold on to the cash UNTIL you have the new job and then consider paying off. For now keep up with or slightly increase monthly payments. The idea is to not be stressed at what could be a stressful time.
Credit card debt is money already spent. It is never leverage. I would pay it.
There are many credit cards that offer balance transfers with 0% interest for first 18-21 months. Make sure itÔÇÖs a different company than which you owe debt to. I.e Citibank doesnÔÇÖt allow transferring existing debt to Citi card 0% balance transfer. So do your DD. Look up ÔÇ£Best Balance Transfer & 0% APR Credit Cards.ÔÇØ
This will hopefully put a pause on that excruciatingly high APR and buy you time until you secure a job.
Good luck.
First, take care of yourself.
Make sure you have enough for food,rent and essentials for the next 6mo. While you look for a job cut any non vital expenses.
Second itÔÇÖs time for damage control.
YouÔÇÖll roughly pay $425 in interest alone this month ($242 card 1 + $183 card 2)and that will quickly compound. Look at options like consolidating your debt into one payment with lower interest or even a balance transfer to another card (if your credit allows). Balance transfers will usually charge 5% of the entire balance and leave you interest free for 12-24 months where you can make minimum payments while you get on your feet. Assuming you can balance transfer both amounts youÔÇÖll pay a one time $1K fee(2 months of interest in your current situation) and get 12-24 months of 0 interest while only making minimum payments
Finally, build healthy financial habits.
Once you get on your feet and weather the storm, cut up all your credit cards and either use debit or a charge card until you can confidently control your finances.
Happy to clarify or answer any questions.