Ask AI Coach

You're in a strong position to tackle your debt with a clear strategy, and it's fantastic that you’re motivated to take action. Let’s break this down step-by-step:

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1. Prioritize Your Debt Payment Plan

• Step 1: Credit Card Debt ($10K)
  • Reason: Credit cards typically have the highest interest rates, even if this one isn’t in your name. Paying it off first saves you the most in interest.
  • Action: Pay this off in full or as much as possible immediately. This will help both you and your partner feel relief and reduce financial strain.
• Step 2: Medical Debt ($2K)
  • Reason: Medical debt often has lower interest (or none) but still needs to be addressed. It’s a smaller balance, so knocking it out quickly will feel like a win.
  • Action: Pay this off right after the credit card debt.
• Step 3: Vehicle Loan ($6K)
  • Reason: Vehicle loans tend to have moderate interest rates and fixed terms. It’s a lower priority compared to credit cards but still worth addressing soon.
  • Action: Pay it off after the other debts if you can still maintain a comfortable cash buffer (see #2).

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2. Maintain an Emergency Fund

• While paying off debt aggressively is tempting, keep 3–6 months of essential expenses in your savings account as a safety net. This ensures you’re prepared for unexpected situations (job loss, medical emergencies, etc.).
• If you’re tempted to wipe out your savings entirely to pay the debt, leave at least $5K–$10K untouched in your high-interest savings.

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3. Build Credit Strategically

• Getting a credit card can help you build credit, but it requires careful management. Consider a no-annual-fee card or a secured card with a small limit.
• Use it sparingly for small recurring expenses (e.g., a streaming subscription), and pay the balance in full every month to avoid interest charges.

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4. Balance Debt and Future Savings

• After the debt is gone, redirect the freed-up cash flow into:
  • Emergency Fund Expansion: If you didn’t already hit 6 months’ worth of expenses, grow this first.
  • Investments: Start contributing to retirement accounts (e.g., Roth IRA) or saving for a down payment on a home.
• This ensures you’re not only debt-free but also building wealth for the future.

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5. Pay Off Aggressively, but Strategically

• Based on your ability to pay off everything today, a 3–6 month plan strikes a good balance:
  • In Month 1, pay off the credit card debt.
  • Over the next 2–5 months, eliminate the medical and vehicle debts, ensuring you maintain your emergency fund.
• This approach minimizes interest charges while keeping you financially stable.

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What I Would Do in Your Position

1. Pay off the credit card debt immediately to stop high-interest charges.

2. Use the next couple of months to clear the medical and vehicle debts while preserving an emergency fund.

3. Apply for a low-risk credit card to build your credit responsibly.

4. Shift your focus toward saving for your house and investing once debts are cleared.

By tackling your debt now while keeping some liquidity, you’re setting yourself up for financial freedom and flexibility. Great job on taking the first step—you're on the right path!