Paying Off Debt With Stimulus Check

Here at the TravelWriteMoney household, we decided to use the stimulus check to pay off some debt on the books. Some of this is debt carried over from getting stuck with more than $7,000 in charges by a family member who could not pay, and the ensuing lawsuit. Another part of it was to pay off an installment loan that was originally meant to work as a revolving line of credit until the bank decided to close the account. And, a smaller portion went to pay off another credit card that was closed due to the same default. What all of this has in common, besides the origin, is that by paying these off we increase our household cash flow.

Paying off the balance transfer card gives us back $200 per month. Although the card was at 0% interest for several months, it required keeping to the payment schedule to avoid paying interest.

Paying off the closed business card gives us back $50 per month.

Paying off the line of credit gives us back $165 per month.

Over all, we stand to free up roughly $415 in cash flow every month, which is still a significant amount in our household. This recovered cash flow then allows us to more quickly reduce the balances on other accounts. For example, there is another closed card account that has a $6500 balance, requiring monthly payments of roughly $200. However, before paying that off, we are going to ensure that our active cards are brought current. The balances are not that high. We should have these tamed within a month or so, especially with the recovered cash flow.

We have mostly focused on servicing our open accounts more than the closed ones because of the Velocity Banking method. When you pay down a revolving line of credit, you simultaneously reduce the account's average daily balance, satisfy the minimum payment, and restore the amount of credit available to you in case you need it.

In comparison, paying down an installment loan leaves you without the cash and no additional credit. Yes, you might argue that you can save yourself on interest cost, or volume of interest. However, on a tight budget, you benefit more from increasing your available credit in case you need it. Closed credit card accounts and lines of credit effectively become installment loans. Thus, we deprioritized paying these accounts. We would make extra payments here and there as the budget permitted. However, our main priorities are the active cards that allow us to conduct our household business.

After our active accounts are brought under 20% utilization, we will put excess cash flow towards the last remaining closed credit card. We are prioritizing restoration of our credit so that we can mortgage our home. We just bought our home in 2020 using a 401k and issuing a note for an additional $15,000. We would like to consolidate the payments into one. Thus, we need to clear up our credit for qualifying.

The stimulus payment has been a windfall that has helped us speed up our timeline. Other factors that will benefit us this year is that the relative has started making monthly payments of $500 to reimburse us for the $7000 trouble. In addition, Core Number Compounding has yielded some extra cash that will also help us improve our financial position. And, of course, we continue to dollar cost average into Bitcoin.

To quote the A-Team's John "Hannibal" Smith: "I love it when a plan comes together."

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